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CHENNAI, Jan. 24

THE decision to postpone implementation of the value-added tax system was neither a political move nor an administrative failure. It was taken in the interests of strengthening the system, according to Mr Abhay Tripathi, Director, Ministry of Finance (Department of Revenue).

Addressing a seminar on VAT, organised by the Tax Executives' Forum here on Thursday, Mr Tripathi said postponing the introduction of VAT was to address the concerns of trade and industry. And, VAT in a truncated form would not be successful, he said.

(It may be recalled that implementation of VAT, which was to begin on April 1, 2002, has now been put off to April 1, 2003.)

The Government was aware of the concerns expressed by the trade, industry and the States. When VAT gets introduced in 2003, there will be a commonality of act and common administrative procedures.

Mr Tripathi asserted VAT would come and should get introduced in a form that was acceptable to all concerned. Earlier, VAT was to be introduced in two phases - 15 States and five Union Territories implementing it from April 1, 2002 and the remaining States from the next year. Now, all the States had decided to implement VAT from April 1, 2003. "There shall be no further postponements," he said.

He said any tax reform had to be approved by the legislatures and any legislative decision took time. That was one of the reasons for the postponement. Central Sales Tax (CST), he said, was inconsistent with the pure concept of VAT. However, it could not be removed immediately but in a phased manner. The problem of CST would be sufficiently addressed to the advantage of trade and industry by the time the VAT system comes into effect.

Mr Tripathi said the VAT legislations of individual States would come to the Ministry before they get Presidential assent. The Ministry had appointed a consultant who had given suggestions. None of the acts would have levies like the entry tax and turnover tax, while the CST concerns would also be addressed. The issue of incentives given to industries would also be looked into and no decision would be taken that would violate the agreement. It would not impact the industry.

Mr D. Sundaram, Director (Finance), Hindustan Lever Ltd, said the present tax system was on a narrow base with excessive dependence on the manufacturing sector for revenue. The high incidence of taxation discouraged compliance, while the complex structure and regulations led to prolonged litigation. Switching over to VAT would result in a transparent system of taxation and eliminate cascading effect on the cost of goods. However, the proposed rate structure should recognise the price elasticity of demand.

Mr S. Viji, Vice Chairman, Sundaram Finance Ltd, said the VAT legislation should cover both intra- and inter-State trade. If it did not address inter-State trade, distortions would be created. For instance, a State like Tamil Nadu, which sold more automobile components outside the State rather than within, would be affected. The time available for switching over to VAT should be used to study and introduce VATable CST. The existing sales tax concessions should not be withdrawn and a mechanism to ensure that the benefits continued should be put in place.

Officials from the Commercial Tax departments of Tamil Nadu, Andhra Pradesh and Pondicherry voiced concerns felt by their governments with regard to CST. States which got large sums of money through the CST would like it to continue for some time even after VAT came into effect, while a Union Territory like Pondicherry would ideally like CST to be abolished along with the introduction of VAT.

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