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Our Bureau

They can't afford to lose revenue: VAT panel

New Delhi May 5 State Finance Ministers on Saturday said that they were firmly opposed to giving any State-level tax exemptions in the non-processing area of special economic zones (SEZs) despite the Centre's plea to tax-exempt all sales made to such zones.

"The empowered committee is against giving any State tax exemption (on VAT and other taxes) in a non-processing part of the SEZ. No one should impose on the States that they would have to give tax exemption. It's serious. We cannot afford to lose revenue," Dr Asim Dasgupta, Chairman of the Empowered Committee of State Finance Ministers on value added tax (VAT) told reporters here.

Dr Dasgupta said this was a unanimous view of all States and it would be communicated to the Central Government. He also said that the stance of the States on the non-processing part was consistent with the SEZ Act.

Informed sources said that the Commerce Ministry had written letters to all States that they should zero-rate (exempt from VAT and all other taxes) all sales made from the domestic tariff area to SEZs (both to processing as well as non-processing areas).

The VAT Panel, however, is not prepared to miss out on VAT and other tax revenues on sales made from DTA to non-processing part of the zones.

Non-processing areas of SEZs generally house social infrastructure such as schools, hospitals, malls and parks. The Government rules require 50 per cent of a SEZ to comprise non-processing area. The States want that any sale of, say, building material to the non-processing area, should not be exempt from VAT.

Tax-list

The Empowered Committee also asked the States to furnish a list of 44 services where they want to impose service tax.

However, the State Finance Ministers on Saturday decided that they would exclude from the list items that are concerned with education or health for common people, transport for common people and individual performance of artistes or sportspersons.

"It is only in some of the other items that are high-end items, which are consumed by richer sections, that a set of new service tax would be introduced," he said.

Dr Dasgupta also said that tax revenues of VAT-implementing States grew 24 per cent in fiscal 2006-07 to Rs 86,249 crore from a level of Rs 69,691 crore in 2005-06.

Working group

Meanwhile, the VAT Panel on Saturday finalised the terms of reference of the joint working group that has been set up to help frame a roadmap for introduction of goods and services tax (GST) by 2010.

The joint working group would comprise four representatives of the Union Finance Ministry and the Finance Secretaries of all States would be members. The VAT Panel has asked this working group to recommend an appropriate GST model and submit its report in four months.

"The GST will be a superior form of VAT and would be even better than VAT. The tax load on goods and services together will fall. At the same time, it will be structured in a manner that revenues of the States and the Centre will also increase. It will be a simpler form of tax," Dr Dasgupta said.

More Stories on : Taxation | Infrastructure | States

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