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Jaswant tells states to speed up VAT transition

Finance Minister Jaswant Singh has expressed concern over the “slow progress” made by states in gearing up for the transition to the value added tax regime from April 1, 2003.

According to government officials, Singh has asked the empowered committee of state finance ministers to expedite resolution of various issues, especially with regards to the legislative measures to be taken by the states for ushering in the new tax regime.

In the next meeting of the committee on November 28, the members are scheduled to take up the issue of tardy progress made by the states in finalising their VAT legislations.

Though all the states had been asked to draw up their VAT legislations by October 31, only three states had so far finalised their VAT laws. These states have also got the Centre’s approval for enacting them.

About 20 states are still in the process of either finalising their VAT legislations or are awaiting the Centre’s approval.

A major reason for the delay of vetting of VAT legislations of states is the incorporation of the entry tax provision by several states in their draft bills, which is opposed by the finance ministry.

Officials said, “The finance minister’s concerns are justified because the implementation of VAT has been postponed twice already, largely due to disagreements between the Centre and the states on the compensation issue and also because of delays by the Centre and the states in effecting legislative changes required for making the changeover in the tax structure.”

Another issue that will be discussed in the committee meeting is correcting numerous violation among states with regard to the uniform floor rates.

The floor rates were implemented in January 2000 whereby all states agreed to levy sales/commercial tax at rates either equal to or higher than the floor rates.

Several states, however, have chosen to lower the rates below the prescribed norms for several commodity categories in order to provide competitive advantage to their industry.

Following examination of draft state VAT bills, the consultant to the finance ministry, B R Atre, had called for bifurcation of the tax provision from the VAT bills.

He recommended bifurcating the entry tax provision from VAT bills in case of states like Delhi, Madhya Pradesh, Maharashtra, Punjab, Karnataka, Uttar Pradesh and West Bengal.

Most of these states were now planning to ringfence the tax into a separate legislation and introduce it a few months after the implementation of VAT from April 1, 2003, officials said.

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