The Hindu : `Uncertainty on VAT will hit States'

Online edition of India's National Newspaper
Friday, May 02, 2003

Southern States

Southern States - Kerala

`Uncertainty on VAT will hit States'

By T. Ramavarman

THRISSUR MAY 1. The vacillation of the Centre on the implementation of the Value Added Tax (VAT) will seriously affect the financial stability of the States which have made their Budgetary estimates based on this new tax regime, the Kerala Finance Minister, K. Sankaranarayanan, has said.

Mr. Sankaranarayanan, who has just returned from New Delhi after attending the meeting of the State Finance Ministers' Empowered Committee on VAT, made these observations during an informal conversation with The Hindu here today on the latest announcement of the Union Finance Minister, Jaswant Singh, deferring the implementation of VAT from June 1.

``Even the announcement by the Union Finance Minister in Parliament yesterday is ambiguous. He has only said that VAT must be implemented in all the States simultaneously and that the groundwork for this is yet to be completed. In a way, he was saying that its implementation will be deferred. But the Centre must now make a categorical statement at the earliest on whether it is planning to implement VAT, and if yes, since when. Or else, it will affect the budgetary process of the States."

He said that "the States like Kerala have calculated their Budget estimates for the current financial year anticipating the implementation of VAT. Of course, it is the Kerala Government Sales Tax (KGST) rules that are prevailing in the State now, and it will remain so till the implementation of the new tax regime. But unless the Centre makes its position clear, the State will not be able to make a proper assessment of its potential tax revenue."

The Minister said, "the members of the Empowered Committee headed by the West Bengal Finance Minister, Ashimdas Gupta, will meet the Union Finance Minister on May 5 or 6 in New Delhi to convey the State's concerns to the Centre. Interestingly, the committee was meeting in New Delhi to finalise the modalities of implementing the VAT from July 1 when Mr. Jaswant Singh made the announcement in Parliament. Of course, I had told the members of the committee last Tuesday that the feedback I was getting from Parliament indicated that the BJP Government has developed cold feet over the implementation of VAT. It was clear that the BJP was under pressure from the trade lobby from the States which are going to polls soon,'' Mr. Sankaranarayanan said.

He said, "Kerala will implement VAT only on two conditions. First, the Centre must compensate the losses that the new tax regime will impose on the State. As per a preliminary assessment, the State will lose about Rs. 500 crores due to the implementation of VAT, and the Centre must compensate this loss."

He said, "secondly, Kerala will implement VAT only if all the States are doing so simultaneously. So far, only eight States have passed the legislations for the implementation of the VAT. The VAT will be beneficial only if it is implemented in all the States together, because bringing in uniformity of tax rates across the country is one of the major objectives of this new tax regime,'' he said.

The Minister also disclosed that an agreement was yet to be reached between the Centre and the States on sharing the additional excise duty on items such as tobacco and textiles. Similarly, the tax rates on several unscheduled items in the VAT regime were also yet to be worked out.

The Minister said, "it is better that the VAT is implemented simultaneously in all the States after clarifying all these issues. But there must be a firm announcement on the implementation of VAT from the Centre immediately because no State will be able to afford uncertainty over such a vital issue like tax rates for a long time.''

Replying to questions, he said the date for the next round of discussion with the Government employees on restoring some of the benefits in the wake of the improvement of the financial position of the State would be finalised in consultation with the Chief Minister.

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