VAT pinching UP shoe makers

Shoe units demand that tax rates should be uniform across the country.

Though the Uttar Pradesh government has postponed the application of VAT in the state till January 2008 apparently to review some 'disputed' parts of the Act, the apprehensions of the SMEs in Agra have not gone down.

The biggest furore being raised by the local entrepreneurs is on the discrepancy in tax-rates in which the various local products have been placed in higher slabs, compared to the neighbouring states like Delhi and Haryana.

Recently, the domestic footwear traders in Agra were on strike for more than two weeks, opposing the placement of the domestic handmade shoes, either leather or plastic, in 12.5 per cent tax slab, while the machine-manufactured or imported molded plastic shoes had been placed in the 4 per cent slab.

According to Raj Kumar Sama, president, Agra Shoe Factories Federation (ASFF), shoes of retail price up to Rs 300 a pair have been made taxable in UP under VAT, while in Delhi the sub-Rs 300 shoes were exempt from the tax.

Though the state government was presently reviewing the tax-slabs following the two-week strike of the footwear traders, there is hardly any indication that it would follow the example of Delhi on sub-Rs 300 shoes.

Upendra Singh Lovely, president, Agra Shoe Manufacturers Association (ASMA), said that the Agra footwear traders are not against VAT, but the tax rates should be unified across the country.

If other states were providing tax-exemptions on a product that was indigenous to Agra, but the same product was being taxed in UP, it would have a negative effect on local trade.

If the state government was keen on entering the VAT regime, it should either provide similar benefits to the local entrepreneurs or ask the other states into adapting similar tax-slabs, he said.

Bal Kishan Gupta, chairman, Advance Glass Works, Firozabad said that the voices of opposition to VAT were mostly rising from the ranks of retailers and small traders who did not comprehend the intricacies of this new tax regime, while the larger traders and manufacturers were pro-VAT, having understood that it was in their favour.

The cloth traders are particularly miffed by the government's decision to bring cloth under 4 percent VAT, while at present, it was exempted from all taxes.

Raj Kumar Kalra, proprietor, Abhilasha Traders, said that cloth was even exempted from entry tax in Uttar Pradesh, but under VAT, it will face 4 percent tax, which will cause a major slowdown in the cloth business.

Citing the reasons for the opposition of VAT by small traders and retailers, Rajiv Gupta, former president, National Chamber of Commerce & Industries, UP, said that the principal issue against this new tax regime was that the state government was trying to impose a tax which had the features of both trade tax and VAT.

He said that the government had thought VAT would replace trade tax. The state development tax and entry tax will be still there. Also, he said, in other states, the complications of Form-31 had been eliminated with VAT, but in UP it would be effective post-VAT, which could hardly be accepted.

Mr Gupta claimed that the traders were also against VAT as most of the small retailers were unregistered with the trade tax department, being small-scale, but with VAT, they would be forced to file for registration and maintain records of each transaction.

In VAT, he said, the credit input settlement time-frame for business done with unregistered traders was 13 months in comparison to just 30 days for a registered trader and as a result, the small traders will become second-grade businessmen with the dealers & stockists preferring to deal only with registered traders to avoid increasing their investment.

If VAT is to be made effective in UP, the government will have to ease the tax-rules for small-scale traders as they were the class that would suffer the most due to VAT by being forced to maintain elaborate computerised and manual records of their transactions, which is hardly possible for the retailers in the state, who are mostly unskilled in accounts or computers, he added.