Andhra yet to classify capital goods under VAT regime

Govt working on responses to final draft of Empowered Committee

Andhra Pradesh, which received the final draft of the Empowered Committee's note on value added tax (VAT) yesterday, has quickly got down to work on formulating responses.

Setting aside a few issues like classification of capital goods, where a decision could be taken only at the political level, special chief secretary of the revenue department Hariharan today held a day-long meeting with the VAT panel of the state commercial taxes department to look at various norms prescribed by the committee for overall compliance. A broad picture on the state government's thinking on majority of these issues is expected to emerge by tomorrow.

The state officials have apparently found no particular difficulty in approaching the general issues of convergence as the exercise so far done by the state on this front is considered to be more in line with the Empowered Committee's recommendations.

In its fifteen-page note, the committee reiterated the basic points of convergence and harmony in terms of rates of taxes, classification of commodities, turnover thresholds and treatment of exports besides deliberating on the implementational issues also.

As per the committee's recommendation, every assessee will be issued a Tax Payer's Identification Number (TIN), which will consist of 11 digits throughout the country. The two digits of the number will be a state code.

Andhra Pradesh has been given the code number of 28. The state commercial taxes department is already issuing TIN numbers to its dealers.

On the implementation side, the committee mooted a thorough and comprehensive crosschecking system, which would be built on the existing coordination between tax authorities of the state government and the authorities of the Central Excise and Income Tax, to help reduce tax evasion.

The committee has also decided to set up a group with one representative from each of the national level trade organisations and national level chambers of commerce and industry to discuss issues and sort out problems of implementation of VAT in the states.

Among the 530 goods that were brought under VAT and enjoy the benefit of the input tax credit, the largest number of them (265 to be precise) including basic necessities such as medicines and drugs, all agricultural and industrial inputs, capital goods and declared goods, were prescribed under 4 per cent VAT rate and the remaining commodities, common for all states have been brought under the general VAT rate of 12.5 per cent.

Apparently, the state government is yet to make up its mind as to allow the capital goods to remain in the 4 per cent VAT rate as suggested by the committee or to shift it to the higher rate group.

"Such issues will be decided by the cabinet sub-committee that was set up to finalise the VAT amendment bill," a senior official told Business Standard.

The state government has already proposed changes in the draft amendment bill in case of turnover thresholds, making penal provisions less stringent among other things as suggested by the Empowered Committee.

When it comes to the list of goods that will remain outside VAT, the state government is yet to take a view on lottery tickets. The committee has kept lottery tickets, along with liquor, petrol, diesel, aviation turbine fuel and other motor spirit, out side the purview of VAT.

As the frame work of the state-level VAT has the twin objectives of striking a federal balance between the common points of convergence regarding VAT and providing a set-off for the tax already paid along with imposing tax on the value addition of goods, the states at this juncture have been apparently left with little choice in contradicting the basic formulations put forth by the Empowered Committee.