New regulatory system for VAT

The empowered committee on value-added tax will start visiting a dozen non-VAT states later this month to convince these state governments to join the new tax regime.

The committee is also likely to put in place a new regulatory mechanism for a uniform floor rate regime.

The UFR regime makes it mandatory for all states to tax petroleum products like diesel at 20 per cent. States like Delhi had complained about revenue loss caused by diversion of trade to neighbouring states with lower tax.

The Crisis Over VAT: Complete Coverage

The Delhi government had on Tuesday notified the roll back of the 20 per cent VAT on diesel by putting it in the 12.5 per cent category.

"We will come out with a new mechanism for which we would need the Central government's intervention," member secretary of the empowered committee Ramesh Chandra said, confirming that the empowered committee was planning to start visiting the non-VAT states in the next 10 days.

He said the Central intervention would be needed as the states would not be able to settle disputes among themselves. "Delhi cannot punish Punjab nor can Punjab punish Delhi for flouting the UFR," he said.

The empowered committee will meet sales tax commissioners on May 12, which is likely to be followed by a meeting of the state finance ministers in June.

The life-saving drugs are also likely to continue under the 4 per cent slab. On whether the life-saving drugs would be exempted from VAT, Chandra said, "Unlikely. All drugs are life saving."

Meanwhile, the Confederation of All India Traders on Wednesday came out with a second white paper after one month of VAT implementation.

The paper has highlighted the lapses in various VAT legislations adopted by the state governments. The paper has also reiterated the traders' allegation that most of the states have flouted the clauses in the empowered committee's VAT white paper released on January 17.

The CAIT also said the Centre was behaving like a "silent spectator". The traders had demanded the empowered committee to issue a post-VAT white paper. Chandra, however, made it clear that the committee was not considering releasing of any such white paper.

The CAIT said contrary to the empowered committee's assumption that general price level would fall after the implementation of VAT, prices of most of the commodities including those of essential item had increased.

Criticising the norms in the VAT Acts of different states, the trade body said the new tax system had provisions, which would encourage inspector raj, beginning right from the registration stage.

It said the composition scheme given in the VAT Act where the small traders can opt out of VAT by paying a small percentage of their gross turnover, was not uniform across all states and in some states, including Maharashtra, it was not linked to the gross turnover.

The CAIT said though the empowered committee had announced a set off for input tax as well as tax paid for previous purchases, traders were being denied input tax credit on fuel, on capital goods and on inputs if finished products were tax free.

The input tax set off was not also being available for goods sent out of the state and for goods purchased from a composition dealer.

The trade body also said that states had failed on computerising the tax sytem and return forms had been designed in such a way, which could not be filled without the help of a chartered accountant.

The CAIT said even though the empowered committee had made a commitment that the central sales tax would be phased out, the Central government was yet to give a clear roadmap.

It also said states were still continuing with other local taxes which were supposed to be abolished with the implementation of VAT.