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Govt mulls 12% median VAT

BS Economy Bureau in New Delhi

The government is considering a single median value-added tax (VAT) rate of 12 per cent on most items instead of a band rate of 10-12.5 per cent proposed earlier, according to the secretary of the empowered committee of state finance ministers on VAT, Ramesh Chandra.

This demerit rate will be apart from the 4 per cent VAT rate on essential agricultural goods, 1 per cent on precious metals and 20 per cent on demerit goods like tobacco and alcohol.

"The VAT rate has not been finalised yet," Chandra said, adding that there was no rationale in having a band rate of 10-12.5 per cent within the country while a single rate was being favoured by all.

The government had decided to phase out central sales tax in four years, while additional duties imposed by states were likely to go after VAT was implemented across the country from April 2003, he said on the sidelines of a Confederation of Indian Industry seminar today.

"Most of the additional taxes levied by states are likely to go once VAT is implemented. We hope there will not be much loss in revenue," Chandra said.

Most of the states have imposed additional taxes like entry tax for cars in Delhi to check tax evasion, but that has led to a multiplicity in the tax structure.

The central sales tax would be 4 per cent in the first year, 2 per cent in the second year, 0-1 per cent in the third and abolished in the fourth year of introduction of VAT, Chandra said.

He said states had been insisting on 100 per cent compensation for the loss in revenue in the transition to the VAT era, which was being looked into by the finance ministry.

States had been asked to draw up their VAT laws by November. Three states have already got the Centres approval for enacting their VAT legislation, while 20 states are likely to get approval soon.

The Centre will bring in a VAT Bill in the winter session of Parliament and intends to amend the Constitution in the Budget session to empower states with concurrent powers to levy tax on services that are local in nature.

Concerned over the large-scale tax evasion, Chandra said, "About 90 per cent of traders don't care to take invoices on all their transactions. Until this is done, I don't know how we can prevent tax evasion."

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