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VAT may be put off again

By Alok Mukherjee

NEW DELHI APRIL 25. The implementation of the value added tax system in the country is likely to be put off again with the Union Finance Minister, Jaswant Singh, maintaining that an important initiative such as VAT "must not and should not be defeated through faulty implementation" and "certainly not in a patchwork fashion".

Moving the Finance Bill, 2003, in the Lok Sabha today, Mr. Singh said that 16 States were so far ready for VAT from June 1 but only eight States had the VAT legislation in place. Here too, "the non-conformity of some of the important provisions of the VAT legislation presented for Presidential assent with what had been prescribed by the empowered committee needs to be addressed by the States concerned... Trade bodies and civil society have also pointed out scope for improvement in the VAT Bills passed by the States". Hence, "it is important to follow a uniform framework in terms of the basic structure of both the law and the rates across the States for ease of tax administration, avoiding distortions as well as unifying the nation's markets," he said.

Mr. Singh said the empowered committee of State Finance Ministers had on April 23 addressed most of the divergences and suggestions and it proposed to deliberate on the remaining issues at the upcoming meeting on April 29. "The VAT Bills to be presented for Presidential assent in the future and those already received for such assent will need to incorporate the latest set of recommendations of the empowered committee in this regard."

Though the committee had on April 23 addressed most of the concerns of trade and industry against VAT by reducing the duty rate on medicines to 4 per cent and providing traders with an annual turnover of Rs. 40 lakhs the option of not going in for VAT by paying a composite tax of one per cent of the turnover, the BJP had on Thursday called for keeping VAT in abeyance. Today, Mr. Singh seemed to have accepted the BJP demand, but his office told presspersons later that the "Minister is fully committed to the implementation of VAT but wants it to be a sure-shot affair and not a patchwork job. The Minister wants the system to be fool-proof and to ensure that, a few months delay in such an important reform initiative does not amount to much".

Mr. Singh also referred to the eight per cent CENVAT (Central VAT) on branded edible oils and vanaspati packed in sealed containers for retain sale. "Certain distortions have been observed in the operation of the scheme. These will be rectified and I will inform the House at the time of the passage of the Finance Bill".

About the textiles sector, he referred to the recent initiative of his Ministry to do away with pre-registration with the excise authorities for handloom weavers, silk fabric producers and small powerloom weavers and manufacturers of readymade garments. Amendments would be made in the Finance Bill, he said and promised to attend to the legitimate concerns of the hand-processing sector.

Mr. Singh also recounted some of the budget promises for infrastructure development and apprised the House of the developments that had taken place since the presentation of the budget. The India Development Initiative, for instance, had been made operational in his Ministry on an outlay of Rs. 200 crores and the fund aimed at promoting investment and trade to and from India and boosting the country's image overseas.

The new cash management system announced in the budget had been introduced in the Ministries of Food, Fertilizer, Human Resource Development, Rural Development, Health and Family Welfare and Agriculture; the buy-back of high-cost government debt from banks had been finalised and Rs. 14,000 crores prepayment of the States' high-cost debt had been undertaken. About Rs. 30,000 crores of such debt would be swapped with low-cost fresh borrowing.

A new pension scheme based on defined contribution for new Government recruits had been finalised and the process was on for the creation of a pension fund regulatory authority.

Earlier in the day, the Lok Sabha applied the guillotine to the demands for grants of various Ministries and passed the relevant appropriation bills to enable the Government to spend Rs. 8.45 lakh crores during the current fiscal year. The House actually passed the demands for grants of only the External Affairs and the Labour Ministries while the rest were put to the guillotine.

With this, the second stage of the budget passage has been cleared and once the Finance Bill is approved as scheduled on Wednesday, the budget approval process will be complete in the Lok Sabha.

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