Chambers for phasing out of central sales tax

While welcoming the white paper on value-added tax (VAT), leading industry associations have called for a roadmap for phasing out of central sales tax (CST) at the earliest. The industry chambers feel VAT and CST are incompatible.

However, industry hailed the proposal for the imposition of 1 per cent VAT on bullion and 4 per cent on foodgrains, with states being given the option to exempt grains in the first year.

Units located in special economic zones and export oriented units will be granted either exemption from payment of input tax or refund of input tax paid within three months.

Ficci, however, said it would have been better if the empowered committee had made provisions for immediate availability of credit on inputs procured from other states through inter-state sale and stock transfers.

It also called for abolition of all local taxes, including octroi and entry tax instead of making them VAT compliant.

Assocham President MK Sanghi also welcomed the proposal for having two slabs of 4 per cent and 12.5 per cent in the VAT. He welcomed the proposal for exempting 46 commodities, comprising natural and unprocessed products in unorganised sector.

Sanghi also appreciated that around 270 products, including items of basic necessities such as drugs, farm produce and industrial inputs, would be under the 4 per cent VAT category and common to all states.

According to KN Memani, president of PHDCCI, "This will improve the competitiveness of industry, both at domestic and the international level, and will help in bringing about the unification of the market."

However, contrary to the government's claim that the new value-added tax (VAT) regime would bring down prices, traders in the Capital said the new regime would induce an inflationary trend, with prices of many commodities of daily use going up.

The traders also said the flexibility given to states in creation matters would lead to disparities among various state VAT laws, in reaction to the white paper released by the empowered committee of finance ministers of the states on VAT.

The Confederation of All India Traders secretary general Praveen Khandelwal said since most major items were in the 12.5 per cent tax slab compared with 8 per cent at present would lead to a jump in inflation.

The traders' body has also demanded that the government should abolish central sales tax with the introduction of VAT.

"Although it has been said central sales tax will be phased out, no clear-cut roadmap has been defined," Khandelwal said.

He also said the government had not clarified whether any other tax would coexist with VAT. "The continuation of other taxes will result in multiplicity of taxes, leading to higher inflation," he said.

The traders' body also complained that the carrying over of excess credit procedure was a lengthy process and resulted in traders running to the department for no reason.

It also criticised the white paper saying there was no list of 46 commodities under the exempted category and 270 commodities under the 4 per cent category, though already finalised by the empowered committee.

It apprehended that if the states might be allowed to decide the commodities, which would reflect major disparity in the tax structure between states. It has also said there was no need of a VAT audit as mentioned in the white paper.

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What the chambers say

FICCI: Abolish all local taxes, including octroi and entry tax instead of merging them into VAT

ASSOCHAM: Move to keep around 270 products of basic necessity such as drugs and farm produce in the 4 per cent VAT category welcome

PHDCCI: VAT will improve the competitiveness of local industry, both in Indian and international markets

CAIT: Since most items are in the 12.5 per cent tax slab compared with the current 8 per cent, the move will lead to a jump in inflation