KO-Archives-April,2,2005:VAT Comes Into Force Amid Protests

SRINAGAR —  In accordance with a widely followed international practice, a Value Added Tax (VAT) system came into effect in Jammu and Kash­mir and 20 other stales Friday despite protests from sections of traders across India. Modern pro-reform VAT, regarded as a rational system that prevents cascading effect of tax checks evasion and augments revenues replaces five-decade old sales tax regime was however not implement­ed in states like Uttar Pradesh,Tamil Nadu. Uttaranchal and five BJP-ruled states – who decided to continue with the old tax regime,

The Confederation of All India Traders (CAIT) and other trade organ­isations observed Friday as “black day” even as their nationwide protest against VAT entered the third day.

With today’s development, India has become one of the few nations t0 implement VAT at a fast pace within four years. VAT implementation in European Union, Canada and UK took more time.

VAT introduction comes after an assurance from Finance Minister P Chidambaram on compensation for revenue loss coupled will) Empow­ered Committee’s decision to double the exemption limit and reduction in the tax rate from I to 0.25 per cent for traders with a turnover of Rs 10-50 lakh. Although BJP was instrumental in setting up the Empow­ered Committee in 200I and initiating the process of VAT introduction when it was in power, the party is now opposed to the new regime as Centre has decided to retain Sales Tax in the Initial years. Although the VAT panel had announced broadly the VAT rates for over 550 items it may revise some of them after June 2005.

Out of these 550 Items. 46 natural and unprocessed local products would be exempt from VAT as per the White Paper prepared by the panel. About 270 items, including drugs and medicines, nil agricultural and Industrial inputs, capital goods and declared goods would attract 4 per cent VAT. States have the option of levying 0 of 4 per cent VAT on grains. Tea-producing states can levy 12.5 per cent or 4 per cent tax on the product subject to review in 2006.Precious metals like gold and silver would be taxed at 1 percent. Remaining items would attract 12.5 per cent VAT. Petrol and Diesel would be kept out of VAT regime, which covers only marketable items.

Chandra said there would be no major changes from what has al­ready been announced.

Tax experts said that investment and trade will shift out of the states not implementing the new lax to those who have the VAT regime.

(Kashmir Observer, 02 April, 2005)

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