The Hindu Business Line : A snooze for VAT

THE CLOCK HAS been turned back by a year for the scheduled switchover to a VAT regime. The new D-Day is to be April 1, 2003 and not the approaching fiscal start. It is often the case that in matters involving hard policy choices, an approaching deadline often prompts the government into extending the implementation date. VAT has been no exception. No blame is officially being piled on the level of preparedness of the states, but that could be a strategic line to encourage the `team-spirit' among the key players, namely the states. The bureaucratic reasons for buying time centre on the yet-to-take-place amendments in the relevant legislations such as the CST Act.

Onecould draw comfort from the experience of a few countries that took longer to bring in VAT reforms. Or from the brave declarations of "no further postponement". Or the bunching of special and non-special category of States for the plunge on the V-Day. There are, however, a whole lot of issues to be thrashed out before time runs out again, such as how to compensate States should VAT cause a revenue loss and industrial units that now enjoy sales tax concessions, the list of services that States could tax, handling of stock-transfers, set-off for tax paid, and the threshold limit for the VAT chain. Considering the complexity of the issues involved and how ready the participants were for the change-over, it was just as well that the states bought themselves time.

The Finance Minister, Mr Yashwant Sinha, identified, among other things, the current recessionary phase as a culprit and that the introduction of VAT now would add to more uncertainties. What, therefore, is implicit in the deadline deferral is perhaps a prediction, however crude, that the recession would all be over in about a year. A soothing thought, just as much as the stereotyped refrain of the policy-makers that "all concerns will be addressed".

The El Dorado of the VAT regime with the stated aim of achieving a "common market" may seem enough justification for States to toe the line if only out of economic necessity rather than coercion by the Centre. Yet at the end of day, grants-in-aid from New Delhi could well be the lollipop that will calm the cries, should the flow of revenues for the States thin in the wake of VAT.

For the studious at the Centre and in the States, there are fourteen more months to do the homework. Draft bills are yet to come out of almost a dozen States. Informed debating of these proposals, seen as key in these reforms, need to happen more widely. All the State-level legislation has to fall within a narrow band of variations. Industrial units also have to get busy assessing the impact of VAT on their business policies. Short of making an astrological forecast, one can predict safely that consultants have a crucial role to play in the switchover and that their finances would improve even if they don't quite succeed in allaying apprehensions in State secretariats about their own finances. For the Indian psyche, painted as seeing time as being eternal, a year's delay should not cause any great worries. One could just turn over and sleep. VAT could easily be on a snooze mode.

Send this article to Friends by E-Mail

Stories in this Section
A snooze for VAT

Will higher inflation spur growth?

A VAT of worries

Of criminals and terrorists

Single regulator: A troubled exercise

The incentive disincentive