Our Bureau

Chennai , Jan. 30

DR Asim Dasgupta, Chairman, Empowered Committee of State Finance Ministers for VAT, on Sunday agreed to a demand to exempt agricultural inputs — fertilisers, pesticides and seeds — from the purview of Value-Added Tax.

"We are taking the point seriously," Dr Dasgupta said in response to the suggestion put forth by trade representatives at a meeting here between some members of the Empowered Committee and representatives of trade and industry as well as political parties in Tamil Nadu.

He also agreed to a suggestion that the penal provisions of the VAT law may be kept inactive for a certain period of time, till the new VAT regime settles down.

"You have touched a chord in me," Dr Dasgupta told Mr S. Rethinavelu, President, Tamilnadu Chamber of Commerce, who made the suggestion.

Mr Rethinavelu had earlier suggested that since VAT was new to both the administering government department and traders, it should be kept in abeyance for a period of two years. Dr Dasgupta said VAT was being brought in in a mood of trust and hence the penal provisions could be held back for some time. He did not explicitly agree to the timeframe suggested by Mr Rethinavelu.

Mr Rethinavelu also suggested that when agricultural produce was exempt from VAT, processed foods should also be. Otherwise, there would be tax on commodities such as edible oil, broken rice, flour and milk powder. Dr Dasgupta said he would consider the point.

At present, there are two VAT rates proposed: 4 per cent for inputs and 12.5 per cent on finished goods. Mr Rethinavelu and other representatives of trade wanted an intermediate rate, say, 8 per cent (for intermediate goods). To this, Dr Dasgupta said, "We have no fetish over rates, but we do not want too many rates." He promised to look this up when the first review comes up, after three months of implementation of VAT.

Earlier, delivering the special address, the Union Finance Minister, Mr P. Chidambaram, said VAT was good for everybody. For consumers, it meant that prices of commodities would come down because only the value addition is taxed. For state governments, it meant more revenues because of better compliance. Compliance would be better because documents would be needed to prove tax paid, to claim set-off from tax collected; there would be a demand of sellers of goods for bills. Similarly, VAT would be good for traders because the tax procedures would be much simplified.

Mr C. Ponniyan, the Minister of Finance of Tamil Nadu, wanted states to be fully compensated for any shortfall in revenues.

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