World Bank favours floor-based VAT

All states introducing value added tax (VAT) at the same time was a desirable situation but there should not be any restriction on a single state if it wanted to implement VAT, Stephen Howes, lead economist of the World Bank in India, said at a state-level discussion of World Bank's recent report, 'State fiscal reforms in India: Progress and prospects' organised by Indian Institute of Management, Kolkata (IIMC).

Howes, co-author of the report, said VAT should be introduced on the basis of floor rather than uniform rates to avoid revenue loss for the high revenue earning states.

The report said greater focus on tax administration reforms and inter-state revenue coordination was needed to simplify the system and reduce corruption.

There should also be greater emphasis on the profession tax as a potentially important but neglected direct tax revenue source for states.

The report showed subsidies were the normal focus of expenditure restructuring reforms, but success on this front was difficult.

Therefore, the aim should be to manage and control subsidy rather than eliminating it.

The report said there was immediate need to improve the quality of expenditure.

The ways recommended included strengthening the enabling environment by increasing transparency and transfers and establishing anti-corruption agencies, besides improving public expenditure management and doing capacity building for reforms and performance.

D Sen, special secretary, department of finance, government of West Bengal, said the state was pushing the central government hard for a debt restructuring exercise.

"The debt-swap scheme has not been beneficial for the state government. There was urgent need to reduce the debt stock", he added.

West Bengal was expected to reduce revenue deficit to revenue receipt (RD/RR) to 37 per cent in current year from 91 per cent in 1999-2000, claimed Sen.