AP govt to stick to VAT deadline

May delay decision on new industrial policy, Meeting likely to take place in April

The Andhra Pradesh government is determined to go ahead with the implementation of value added tax (VAT) from April 1, 2005, even as competing states like Gujarat, neighbouring states like Tamil Naidu and other NDA-ruled states' decision of not joining the VAT bandwagon is likely to create some problems.

"Though this gives scope for trade diversion, unhealthy competition and unethical trade practices in the days to come, we are not deterred by such eventualities," a senior commercial tax official told Business Standard.

The state commercial taxes minister, K Ramakrishna, on Monday clarified that his government will go ahead with the implementation of VAT, come what may.

Even though VAT is termed as an investor-friendly tax regime, the non-compliance of the same by the industrial states like Gujarat is expected to put certain local manufacturers in a disadvantageous position due to reasons including the tax incentives available in the non-VAT states and higher tax rates for some commodities under the VAT regime.

But according to the commercial taxes department officials, the problems arising out of the commodity movement from the non-VAT state to the VAT state will be taken care of by the 4 per cent central sales tax (CST) to a great extent.

The state government is also undeterred by others' decision against the implementation of VAT for the fact that any loss on account of implementing the new tax system will be reimbursed by the Government of India in the first year.

The state government has projected a revenue loss of over Rs 800 crore in the first year, though businessmen differ with the government's contention saying that only 97 items have been brought under the lower category of 4 per cent VAT with majority commodities being charged at 12.5 per cent tax.

More than the loss in revenue, the likely loss of advantage to the local industry on account of two tax systems being practiced by two set of states in the same country is a cause for concern to many in the industrial sector.

Attracting new investments may also become difficult for states like Andhra Pradesh as the tax incentives that the non-VAT states offer could be more attractive to the investors, they feel.

These worries notwithstanding, the industries department, however, is going ahead with framing the new industrial policy which would be in sync with the VAT system.

"The Legislative Assembly recently passed the VAT Bill. Now how can one expect the government to deviate from its own enactment?" K V Rao, principal secretary of the state industries department, reacted when asked about any possible rethink over the implementation of the new tax system in the light of latest developments.

According to sources, the draft new industrial policy, which is sans tax-based incentives as the VAT regime does not allow the government to offer any tax incentives to the industry, is under circulation and at an advanced stage of finalisation.

In anticipation of the absence of tax incentives in the new scenario, the state government has already created a budgetary provision for an infrastructural fund which is expected to be used for supporting new industries besides power subsidy to industrial units.

Though the proposed new industrial policy is supposed to come into effect from April 1, 2005, it is unlikely that the announcement will be made before March-end in the wake of last minute developments.

A meeting to finalise the policy is expected to be held only in the first or second week of April, according to highly placed sources.