The Centre will ask states governments to withdraw entry tax as part of the VAT implementation schedule. The move comes in the wake of the complaints made by industry that such tax, which has rapidly become popular among the state governments to collect additional revenue, has become a major cost plus factor for business.
Since the entry tax can not be set off in the VAT scheme, the Centre has begun advising state governments to eliminate the tax in the run up to the implementation date for nationwide VAT, scheduled for 1 April 2003, government sources said. States had been justifying levy of entry tax as a measure to counter the phasing of Central Sales Tax.
The Centre has however decided to allow the states to levy the additional excise duties (AED) on sugar, textiles and tobacco which they can retain. But it will not entertain the demand for advance compensation as asked for by some of the states. "States are expected to get back the powers to levy aeds on the three items. This will be a very important gain," the committee's chairman Asim Dasgupta said here today.
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This is part of the formula to ensure that the country makes the switchover from the appointed day. The empowered committee met the adviser to finance minister, Vijay Kelkar yesterday to apprise him of the progress on implementation of VAT.
According to sources, the committee met Kelkar to reconcile among other things the issue of set off for capital goods with that available for other inputs. For the state governments allowing such a reconciliation would lead to a sizable loss of revenue which would be difficult for them to swallow.
The sources added that since the service tax and central sales tax issues have been delinked from the VAT timetable it should not be difficult to stick to the deadline.