VAT rates for 500 items finalised

Essential commodities and manufacturing inputs to attract 4% tax

States today finalised the value-added tax (VAT) rates for about 500 items with essential commodities and manufacturing inputs slated to attract a 4 per cent tax, when it comes into effect from April 2005.

The empowered committee on VAT would soon come up with a formal list of the items and the tax rates, Asim Dasgupta, the committee chairman and West Bengal finance minister, said.

States agreed on the 4 per cent VAT for 250 items including agro products and manufacturing inputs, while 217 other items will attract 12.5 per cent tax.

About 41 items like petrol, diesel, ATF, agriculture equipment and newspapers will be exempted from VAT, while precious metals like gold and silver will attract only 1 per cent tax. Sugar, textile and tobacco items will be out of the VAT net.

"States are fully prepared for VAT from April 2005. We will convey the views of states to the Union finance minister soon," Dasgupta said.

The VAT panel, which met here to iron out differences, is likely to discuss with Finance Minister P Chidambaram tomorrow the issue of a compensation package for any revenue loss after the new tax regime comes into effect.

The panel is in the process of ironing out all the difference and fine-tuning the VAT legislation, which have to be passed by the respective state Assemblies.

The committee also gave a go-ahead to the proposed VAT information exchange system, which would record all inter-state transactions and check tax evasion.

While 27 states had agreed to implement VAT from April at their meeting in June, Uttar Pradesh was unable to take a decision. Dasgupta, however, said the VAT panel had started a discussion with the Uttar Pradesh chief minister. He expected that Uttar Pradesh would also fall in line with other states.

While firming up the VAT rates, states also discussed the compensation package for the revenue loss, if any, during the transition to the new tax regime.

Sources said states wanted the Central sales tax to be brought down from 4 to 2 per cent in the first year and then to 1 per cent in the second year.

States are yet to agree on a complete phase-out of the Central sales tax and some of the local taxes.

The state finance ministers had met on June 18 to discuss the future roadmap on VAT. Union Finance Minister P Chidambaram promised them that the Centre would offer a compensation package for loss in revenue.

Apart from finalising the VAT rates, the committee chairman has also interacted with trade and industry bodies here last week. Dasgupta said there would be more interaction with traders. "They have to be convinced. So far, nobody had interacted with them directly."

He said there would be no "inspection raj" when VAT comes into being. Traders with a turnover up to Rs 5 lakh will not come under the VAT net, while traders with sales of Rs 5-40 lakh will have to pay 1 per cent flat rate. Traders with a turnover exceeding Rs 40 lakh will come under VAT net.