Dy CM misled on VAT: Moily

Deputy chief minister Siddaramaiah was wrongly advised by bureaucrats that the state would lose Rs 1,800 crore in the first year of value added tax (VAT), M Veerappa Moily, former Chief Minister and Chairman of the Tax Reforms Commission has said.

Siddaramaiah's advisers had misinterpreted and miscalculated their numbers, Moily said, inaugurating a seminar on VAT organised by the Kanara Chamber of Commerce and Industry.

The bureaucracy, he said, had created an air of apprehension among the traders and businesmen.

In fact VAT will yield more revenue with little more than 60 per cent implementation and will benefit the whole state. VAT removed the cascading effect of taxes which form 60 per cent of the price of a product, he said.

The tax base would spread more evenly on a large population than a minority. Singapore's economy, once in a shambles, made it to the top after implementation of VAT; Chinese goods are cheaper though it has implemented VAT as the cascading effect of taxes is removed. He assured the trade lobby, businesses' grievances would be redressed adequately before implementation of VAT.

Early last month, both the houses of the Karnataka state legislature approved amendments to a legislation that enables the implementation of the VAT regime at the state level starting April.

The state has been among the first to get ready to implement the new taxation system that is expected to reduce the tax burden and take the national economy a step closer to being integrated by a uniform taxation system.

During the transition, Karnataka would lose some Rs 1,800 crore in the first year under the VAT regime, deputy chief minister and finance minister Siddaramaiah had told the legilative assembly.

The states however had hammered out an agreement with the Centre under which the losses would be made good, he said. The reimbursement would decrease by 25 per cent each subsequent year.

VAT, first implemented in 1954, has been implemented in 130 countries. Australia, last year, was the latest entrant to bring all taxes in the nature of octroi and excise duties under one tax system.

In India, VAT will replace only the sales tax on goods, not services, while the other domestic taxes will remain. In the long run, it is expected India too will bring most or all indirect domestic taxes under VAT, including taxes on services.