FM releases white paper on VAT

Finance Minister P Chidambaram today unveiled the white paper on value added tax (VAT) that prescribes a rate of 4% on a range of 270 items, including drugs and medicines and industrial products, and 12.5% on many other items.

VAT, which has been endorsed by states for implementation from April 1, 2005, will be 1% on bullion and 4% on foodgrains with states given the
option to exempt foodgrains in the first year.

"This is the first document collectively prepared and put out to the people of the country by the finance ministers of all states. We have formed the rainbow coalition to undertake one of the biggest tax reform," Chidambaram said after releasing the white paper today.

Comparing the state level VAT with the central excise duty, he said: In a way, it (VAT) is no different from excise duty. In course of time, it is our dream to move on to goods and services tax (GST) in the future."

Chidambaram encouraged all states to implement the new tax regime, which would replace the sales tax in states, and said: "On behalf of the central government, I promise to fully co-operate with you, compensate you and help in building a computer network system and resolve all problems."

Asim Dasgupta, chairman of the empowerd committee on VAT, said the cascading effect of tax will come down after the introduction of VAT. Prices of commodities would also come down accordingly, he added.

"VAT leads to increase in revenue of states, but there may be some loss in revenue in the initial years," Dasgupta said.