abhishreshthaa

New member
While the States have thus taken several steps towards introduction of VAT, certain supporting decisions were critically needed at the national level for more effective implementation of VAT from April 1, 2005. It needs to be carefully noted that although introduction of VAT may, after a few years, lead to revenue growth, there may be a loss of revenue in some States in the initial years of transition.


It is with this in view that the Government of India had agreed to compensate for 100 per cent of the loss in the first year, 75 per cent of the loss in the second year and 50 per cent of the loss in the third year of introduction of VAT, and the loss would be computed on the basis of an agreed formula.


This position has not only been reaffirmed by the Union Finance Minister in his Budget Speech of 2004-05, but a concrete formula for this compensation has also now been worked out after interaction between the Union Finance Minister and the Empowered Committee. As mentioned earlier, there is also a need, after introduction of VAT, for phasing out of Central Sales Tax (CST).


However, the States are now collecting nearly Rs. 15 thousand crores every year from CST. There is accordingly a need of compensation from the Government of India for this loss of revenue as CST is phased out. Moreover, while CST is phased out, there is also a critical need for putting in place a regulatory frame-work in terms of Taxation Information Exchange System to give a comprehensive picture of inter-State trade of all commodities.


As already mentioned, this process of setting up of Taxation Information Exchange System has already been started by the Empowered Committee, and is expected to be completed within one year. The position regarding CST will be reviewed by the Empowered Committee during 2005-06, and suitable decision on the phasing out of CST will be taken.


It is also essential to bring imports into the VAT chain. Because of the set-off, this will not result in any tax cascading effect, but will only improve tax compliance. A proposal for VAT on imports, including the collection mechanism with adequate safeguards for the protection of interest of land-locked States, is being discussed with the Government of India.


4.5 Similarly, discussion between the Empowered Committee and the Government of India is going on for an early decision on the question of collection and appropriation of service tax by the Centre and the States. If decisions on VAT on imports and service tax are taken expeditiously at the national level, then these two important spheres of taxation can be integrated, along with the AED items as mentioned earlier, into the VAT system of the States from the second year of introduction of VAT.


It may be noted that this VAT design has been worked out carefully by the Empowered Committee to strike a balance not only between the common points of convergence and federal flexibility, but also a balance between what can be done to begin with and what should be incorporated subsequently for further perfection of the VAT system. For successful implementation of State-level VAT, close interaction with trade and industry is especially important.


The Empowered Committee has therefore also set up a Consultative Committee with one representative from each of the national level trade organizations and national level chambers of commerce and industry. This Committee has already started interacting with the Empowered Committee. This process of interaction will continue regularly to discuss issues and sort out problems of implementation of VAT.


Such Consultative Committees will also be set up at the level of each State, and interaction with the State Government will take place in a similarly regular manner. In course of discussion with representatives of trade and industry, reference has often been made to the earlier VAT Bills of some of the States. It should be clearly noted, as already mentioned before, that all the States have agreed to amend their earlier VAT Bills so as to conform broadly to the common design as elaborated in this White Paper.


This process of amendment has also already started. The point of reference on VAT should therefore be this design of VAT as explained in this White Paper. It should also be mentioned that there are some important points on the ground-level implementation of VAT which have been raised by the representatives of trade and industry.


Many of the points will be taken care of in the VAT rules of the States, with changes where necessary. Finally, a comprehensive campaign on State-level will be launched to communicate in simple and transparent manner the benefit of VAT for common people, traders, industrialists and also the State Governments.


This campaign will then be launched first at the national level on the basis of necessary coordination between the States and the Centre. This will then be simultaneously followed up at the level of every State and also in districts of the States.


This campaign will be based on written materials as well as publicity through all media. The purpose of this campaign will be a two-way interaction between the Government and the trade and industry as well as the common people.



There is now only looking forward to the introduction of State-level VAT by all the States and Union Territories from April 1, 2005. We seek cooperation of all sections of people in the country.
 
While the States have thus taken several steps towards introduction of VAT, certain supporting decisions were critically needed at the national level for more effective implementation of VAT from April 1, 2005. It needs to be carefully noted that although introduction of VAT may, after a few years, lead to revenue growth, there may be a loss of revenue in some States in the initial years of transition.


It is with this in view that the Government of India had agreed to compensate for 100 per cent of the loss in the first year, 75 per cent of the loss in the second year and 50 per cent of the loss in the third year of introduction of VAT, and the loss would be computed on the basis of an agreed formula.


This position has not only been reaffirmed by the Union Finance Minister in his Budget Speech of 2004-05, but a concrete formula for this compensation has also now been worked out after interaction between the Union Finance Minister and the Empowered Committee. As mentioned earlier, there is also a need, after introduction of VAT, for phasing out of Central Sales Tax (CST).


However, the States are now collecting nearly Rs. 15 thousand crores every year from CST. There is accordingly a need of compensation from the Government of India for this loss of revenue as CST is phased out. Moreover, while CST is phased out, there is also a critical need for putting in place a regulatory frame-work in terms of Taxation Information Exchange System to give a comprehensive picture of inter-State trade of all commodities.


As already mentioned, this process of setting up of Taxation Information Exchange System has already been started by the Empowered Committee, and is expected to be completed within one year. The position regarding CST will be reviewed by the Empowered Committee during 2005-06, and suitable decision on the phasing out of CST will be taken.


It is also essential to bring imports into the VAT chain. Because of the set-off, this will not result in any tax cascading effect, but will only improve tax compliance. A proposal for VAT on imports, including the collection mechanism with adequate safeguards for the protection of interest of land-locked States, is being discussed with the Government of India.


4.5 Similarly, discussion between the Empowered Committee and the Government of India is going on for an early decision on the question of collection and appropriation of service tax by the Centre and the States. If decisions on VAT on imports and service tax are taken expeditiously at the national level, then these two important spheres of taxation can be integrated, along with the AED items as mentioned earlier, into the VAT system of the States from the second year of introduction of VAT.


It may be noted that this VAT design has been worked out carefully by the Empowered Committee to strike a balance not only between the common points of convergence and federal flexibility, but also a balance between what can be done to begin with and what should be incorporated subsequently for further perfection of the VAT system. For successful implementation of State-level VAT, close interaction with trade and industry is especially important.


The Empowered Committee has therefore also set up a Consultative Committee with one representative from each of the national level trade organizations and national level chambers of commerce and industry. This Committee has already started interacting with the Empowered Committee. This process of interaction will continue regularly to discuss issues and sort out problems of implementation of VAT.


Such Consultative Committees will also be set up at the level of each State, and interaction with the State Government will take place in a similarly regular manner. In course of discussion with representatives of trade and industry, reference has often been made to the earlier VAT Bills of some of the States. It should be clearly noted, as already mentioned before, that all the States have agreed to amend their earlier VAT Bills so as to conform broadly to the common design as elaborated in this White Paper.


This process of amendment has also already started. The point of reference on VAT should therefore be this design of VAT as explained in this White Paper. It should also be mentioned that there are some important points on the ground-level implementation of VAT which have been raised by the representatives of trade and industry.


Many of the points will be taken care of in the VAT rules of the States, with changes where necessary. Finally, a comprehensive campaign on State-level will be launched to communicate in simple and transparent manner the benefit of VAT for common people, traders, industrialists and also the State Governments.


This campaign will then be launched first at the national level on the basis of necessary coordination between the States and the Centre. This will then be simultaneously followed up at the level of every State and also in districts of the States.


This campaign will be based on written materials as well as publicity through all media. The purpose of this campaign will be a two-way interaction between the Government and the trade and industry as well as the common people.



There is now only looking forward to the introduction of State-level VAT by all the States and Union Territories from April 1, 2005. We seek cooperation of all sections of people in the country.

Hey abhi, thanks for explaining the issues related to VAT and i really appreciate your work and article. Well, i have also got a document which would give detailed information and explain every issues regarding VAT.
 

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