Uncertainty over VAT continues in Tamil Nadu

Tamil Nadu today did not join the majority of states in switching over to the value added tax (VAT) system. Traders and corporates said that the situation was worrisome because the state government has not given any indication of its plans.

However, they were hopeful that the government's stand would be known on April 5 when the demand for grants of the commercial taxes department would be considered in the state Assembly.

Joseph Nathan, general manager (taxation) at EID Parry, described the current situation as a cause for concern. The ambiguous situation made it difficult to plan, he added.

K Sridharan, chairman of the economic affairs sub-committee of CII's southern region, said that the industry had requested the state government for a blueprint on the shift to VAT.

State government officials could not be reached for comment. A consensus among political parties about the need to shift to VAT has been built up.

However, the state government's position in the ongoing Assembly session has been that the switch to VAT would require few conditions to be met.

Recently, in the Assembly, state finance minister C Ponnaiyan said that the state wanted three conditions to be met to smoothen the switch.

He wanted the centre to better the existing compensation level to states to deal with the fallout of the switch, a greater share of service tax and an exemption for a larger list of items.

Some industry hands feared that a long delay in switching to VAT would hurt industry's interests. The manufacturing cost would be higher in a state that did not move to VAT, said a company official.

Traders said that products sold in Tamil Nadu would be more expensive than that of the neighbouring states as they have switched to VAT.

In addition to the uncertainty cased by the state government, hassles related to the switch seemed to have had an impact on prices of some products.

Cigarettes, for instance, were reported to be selling at a premium to the regular price on account of a fluctuation in inventory levels.