The state governments today agreed to stick to the time schedule and introduce value-added tax (VAT) by April 1, 2002. But, they decided to refer the contentious issue of estimating the consequent revenue losses to a committee of state finance secretaries and Union finance ministry officials.
Talking to reporters after a day-long meeting of Chief Ministers and finance ministers, Union finance minister Yashwant Sinha said that most states are on course to implement the uniform floor rate of sales tax by July 31. However, he held out the threat that the entire central plan assistance and plan grants can be withheld for non conforming states.
Sources said, the states who had reservations on the issue, include Rajasthan and Tamil Nadu besides some of the special category states, who in any case have been given the option to introduce VAT by April 1, 2003.
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However, the chairman of the empowered committee Ashim Dasgupta said that a panel of state finance secretaries and Union finance ministry officials will assess the extent of revenue losses to the states on account of transfer to a VAT system by July 31.
The West Bengal finance minister also said this committee will examine the modalities of introducing VAT on services, as well as the demand by state governments to allow VAT to be imposed on imports. These reports will be submitted to the empowered committee by September 30.
Earlier, addressing the conference Sinha said that the government will amend the Central Sales Tax Act to move on to value added tax system in the country from April 1, 2002.
The government will also introduce permanent account number (PAN) as common business identifier for VAT to check tax evasion. The necessary amendment to the central sales tax act is ready and will be hopefully brought in the ensuing monsoon session of Parliament.
He said that there was a consensus among states for using PAN as common business identifier. The move will help both centre and states in tackling problems on the revenue front particularly in plugging leakages and evasion.
According to the report of the empowered committee, presented at today's conference, uniform floor rates have not been compiled on 84 major items in Pondicherry and 14 items in Gujarat.
There have also been deviations by Tamil Nadu in 13 items. Besides there are minor deviations by Goa, Rajasthan, Karnataka, Haryana, Himachal Pradesh, Delhi, Chandigarh, Andhra Pradesh, Tripura, Mizoram, Orissa and Gujarat in few cases.
The report has also highlighted some of the unfair incentives given by states. This includes incentive for a refinery in Allahabad by Uttar Pradesh government while Punjab proposed to give similar exemption to a refinery in Bhatinda. Bio-technology park in Andhra Pradesh is exempted from sales tax while Karnataka gives sales tax incentives to sick units.
Some states have not levied sales tax on country liquor due to auction system. Assam has merged it with excise. Goa continues to give incentives to all categories of industries, the report said.