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White Paper on VAT released
Tribune News Service

New Delhi, January 17
Finance Minister P. Chidambaram today released a White Paper on a valued added tax (VAT), envisaging the roadmap for implementing the new tax regime from April 1 this year.

Under the VAT system covering about 550 goods, there would be only two basic VAT rates of 4 per cent and 12.5 per cent, plus a specific category of tax-exempted goods and a special VAT rate of 1 per cent only for gold and silver ornaments. This would do away with the multiplicity of rates in the existing structure.

There would be also a list of 46 commodities under the exempted category comprising natural and unprocessed products in unorganised sector, items, which were legally barred from taxation, and items that had social implications.

Included in this exempted category was a set of maximum of 10 commodities flexibly chosen by individual states from a list of goods, which were of local and social importance for the respective states and did not have any inter-state implications.

The rest of the commodities in the list would be common for all states.

About 270 items, including drugs and medicines, all agricultural and industrial inputs, capital goods and declared goods would attract 4 per cent VAT.

Under 4 per cent VAT rate category, there would be the largest number of goods (about 270) common for all the states, comprising of items of basic necessities such as medicines and drugs, all agricultural industrial inputs, capital goods and declared goods, the White Paper said.

The schedule of the commodities would be attached to the VAT Bill of every state. The remaining commodities, common for all states, would fall under the general VAT rate of 12.5 per cent.

West Bengal Finance Minister and Chairman of the Empowered Committee of State Finance Ministers Asim Dasgupta said that VAT on additional excise duty items- sugar, textile and tobacco-would not be imposed for one year because of initial organisational difficulties. “The existing arrangement will continue till then and the position will be reviewed after one year,” he said.

Petrol and diesel would be kept out of VAT regime, which covers only marketable items, Mr Dasgupta said. A view was yet to be taken on CNG.

Considering the difficulties faced by Tea industry, it was decided that tea-producing states would be given an option to levy 12.5 per cent or 4 per cent subject to review in 2006.

Mr Dasgupta said that most of the states had prepared the VAT Bill or were in the process of completing it. “There are some problems with one important state (Uttar Pradesh) and these are genuine ground level problems. While most of these problems have been sorted out, we are hopeful that the remaining will be sorted out after we hold discussions after Republic Day,” Mr Dasgupta said.

Releasing the White Paper, Mr Chidambaram termed the introduction of VAT as the single most important tax reforms ever to be undertaken in independent India. VAT, Mr Chidambaram said “We have formed a rainbow coalition to undertake one of the biggest tax reforms since Independence.” It was decided that states would have option to either levy 4 per cent or totally exempt food grains but it would be reviewed after one year.

Mr Chidambaram urged all states to implement the new tax regime assuring that the Centre would compensate the states and help in building a computer network system and resolve all problems.

States would get 100 per cent compensation for revenue loss, if any, in the first year, while 75 per cent of the loss would be compensated in the second year and 50 per cent in third year.

Mr Chidambaram said, “In a way it (VAT) is no different from excise duty. In course of time, it is our dream to move on to Goods & Services Tax (GST) in future.” Back

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