VAT on course even as UP plays spoilsport

The empowered committee of state finance ministers today said the value-added tax (VAT) would be implemented from April 1, even if Uttar Pradesh failed to put in place the proposed cess.

Asim Dasgupta, chairman of the empowered committee of state finance ministers, said: "We have been working on VAT for the last seven years. It will not be deferred, irrespective of whether Uttar Pradesh joins or not, make no mistake about it," he told reporters after a meeting of the committee. Interestingly, Uttar Pradesh did not participate in the meeting.

"We are making all efforts to ensure that Uttar Pradesh joins us. We recently spoke to Chief Minister Mulayam Singh Yadav, who assured us that he would be sending his representatives soon to meet me on the issue. We will discuss their problems and try to sort them out. Resolving the problems of Uttar Pradesh will automatically the address concerns of some of the other states as well," he said, without giving any further details.

Uttar Pradesh has been demanding that the entry level for traders under VAT should be increased from Rs 5 lakh to Rs 10 lakh. Delhi is keen on hiking it to Rs 20 lakh.

At the same time, states like Punjab are opposing the move on the ground that hiking the limit from Rs 5 lakh will exempt most of the traders in the state from VAT.

According to Dasgupta, barring Uttar Pradesh and Jharkhand, all other states are ready with their VAT bills. "Discussions with Uttar Pradesh are internal. I am not at liberty to disclose them. However, Jharkhand has a political problem as regards the formation of the government. This should be resolved soon," he said.

Dasgupta said the committee decided that there would be no penal provisions under VAT for the first six months and a review would be undertaken after that.

The ministers also decided that states would be given the option to include seeds in the list of goods exempt from VAT. A view on including items such as salt will be taken at a later date. The list of 550 items to be covered under VAT had also almost been finalised, he said.

It was also decided that states would be given flexibility under the composition scheme available to traders with a turnover of between Rs 5 lakh and Rs 50 lakh.

Dasgupta said the committee would also seek the concurrence of Finance Minister P Chidambaram on providing compensation to states for phasing out the central sales tax (CST) in three years. Some states like Rajasthan and Madhya Pradesh are seeking a roadmap for phasing out CST.

Ramesh Chandra, member secretary of the committee, said states had been informed that CST would be phased out over three years "" 100 per cent in the first year, 50 per cent in the second year, and would be scrapped in the third year.

"Since CST is important in terms of revenue consideration for certain states, we are looking at a compensation package over and above the package set aside for VAT," Chandra said.

The Centre has set aside Rs 5,000 crore as compensation for VAT in the Budget for 2005-06. Dasgupta said while traders were allowed self assessment under VAT, field officers would not be permitted to visit any trader without a written authorisation from the divisional commissioner.

He said the committee had also approved the setting up of a sub-committee comprising five members to assess the day-to-day problems arising from the imposition of VAT.

The committee will meet at least once a month. State ministers of Kerala, Punjab and Nagaland said they were ready to implement VAT, while Madhya Pradesh said it would implement VAT only if a majority of states did.

Delhi, on the other hand, said it would go ahead if the neighbouring states implemented the new regime. Rajasthan said the implementation of VAT would depend on a roadmap to phase out CST.