VAT on drugs to be fine tuned

Assam, meghalaya to come on board by weekend

The empowered committee on the value-added tax said it was open to suggestions on fine-tuning the system, even as traders protested against the anomalies regarding the coverage and the rates under the new regime.

Secretary of the committee Ramesh Chandra told reporters that by the end of the week, Assam and Meghalaya would implement VAT. The committee was holding talks with the other non-VAT states and the Centre was trying to address their concerns, he added.

Ruling out exemption for the armed forces, Chandra said the committee was open to suggestions on levying VAT on the maximum retail price of pharmaceutical products. "Let us see what emerges from the experiment with pharma products," he said.

The Haryana government, he said, had agreed to raise sales tax on diesel to 20 per cent and it would shortly introduce a Bill to this effect. A higher levy in Haryana will mean that the cost of diesel in Delhi and neighbouring states will be the same.

Chandra reiterated the commitment to halve central sales tax (CST) to 2 per cent from next April and phase it out from April 2007.

On the other hand, traders said there was wide disparity between the levy under VAT on different items and the tax slabs specified for different items in the states.

The Confederation of All India Traders (CAIT) alleged that the empowered committee's guidelines had been flouted. Traders said they would "gherao" chief ministers of states that had implemented VAT.

While Delhi has put food items like atta and maida in the zero per cent category, Haryana and Maharashtra have put it under the 4 per cent slab. Similarly, ready-made garments which attract 0 per cent VAT in Maharashtra, will draw 4 per cent tax in Delhi and West Bengal, CAIT Chairman and BJP leader Vijay Goel said.

"The VAT in the present form will lead to a tax war among states. While some states will announce more incentives to attract trade, others might threaten to shun VAT if they experience a shortfall in tax collection," he said at a press conference.

Chandra said officials from the states would meet before April 15, which would be followed by a minister-level meeting to work out "practical difficulties".

"We have sought feedback from trade and industry bodies among others on VAT by April 11 after which a meeting of state tax commissioners will be held next week to discuss these issues," he said.

Chandra said the lack of trust between the Centre and the states was the single biggest factor hindering the implementation of the new regime. He also called for greater co-operation between states.

Taxing times

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• Exemption for the armed forces ruled out
  
  
• The central sales tax will be halved to 2 per cent from next April and will be phased out from April 2007
  
  
• The Haryana government has agreed to raise the sales tax on diesel to 20 per cent