Effective tax rates to decline after VAT

KOLKATA: Effective tax rates of several commodities are likely to come down after the implementation of Value-added Tax (VAT) that will replace the sales tax system.
While taxation rates would decline, this would not lead to fall in revenue in the long run as VAT would ensure higher compliance among tax payers, Commissioner of Commercial Taxes, C M Bachhawat told a seminar on Saturday.
He said all states to implement VAT from the next fiscal would, however, lose revenue in the financial year 2003-04. West Bengal would lose Rs 600 crore in revenue.
Bachhawat said the main reason behind rates going down was that VAT eliminated the cascading effect which in effect was anti-inflationary.
As manufacturers would be entitled to get refunds on taxes paid on purchases of raw materials from other states, this would help contain the prices of finished products.
Besides, the other advantage was that the taxation system was transparent as well as simple.
On the measures taken to familiarise VAT, Bachhawat said that counters would be opened in the office premises of the commercial taxes department to explain the nuances of the new taxation system.
However, he said that the transition from the present system to the new one would be smooth, and attempts would be made to sort out any inconsistency or confusion.
Terming that introduction of VAT heralded important reforms in the structure of indirect taxation, he said that as VAT rates were fixed, this would lead to elimination of the uncertainty factor which generally set in during the time of state budgets.