FM may sweeten VAT pill, raise threshold to Rs 50 lakh

NEW DELHI: The threshold limit for VAT or value-added tax may soon be raised from Rs 40 lakh to Rs 50 lakh, with most states agreeing to adopt a more practical VAT. The relaxation will benefit a large number of dealers and reduce opposition to VAT. Dealers with a turnover of between Rs 5 lakh and Rs 50 lakh have been offered a composition scheme under which, instead of VAT, they will pay 1% of the gross turnover. Dealers opting for this scheme will not be entitled to input tax credit, according to the white paper on state level VAT released by finance minister P Chidambaram today. This is the first document which has been collectively prepared and put out to the people of the country by the finance ministers of all states... We have formed a rainbow coalition to undertake one of the biggest tax reforms, Mr Chidambaram said. All states, with the exception of Uttar Pradesh, are set to move to the VAT regime. The chairman of the Empowered Committee on VAT, Asim Dasgupta, said the overall tax burden will be rationalised after the introduction of VAT and prices in general will also fall. VAT will replace the existing system of built-in self-assessment and auditing by dealers and will result in higher revenue growth after a few years. States may incur losses in the first few years, and the Centre has agreed to provide 100% compensation in the first year. There is no change in the ceiling of Rs 5 lakh turnover for a trader to be completely outside VAT. States will, however, have the flexibility to fix this threshold limit within Rs 5 lakh. The Empowered Committee on VAT, which met today, also decided to exempt foodgrains from VAT for the first year and reduce VAT rate on tea to 4%. The decision comes on the back of demands from TN and Assam. States have been given the option of keeping foodgrains in the exempted list or in the 4% category. This will be reviewed after a year, Mr Dasgupta said. Close to 550 goods will be covered under VAT. There will be only two basic rates of 4% and 12.5% plus a specific category of tax exempted goods and a special rate of 1% on gold and silver ornaments. A 4% rate will be levied on 270 items, including medicines and industrial products, agricultural and industrial inputs, capital goods and declared goods. The remaining commodities, common for all states, will fall under the general VAT rate of 12.5%. In general, all goods, including declared goods will be covered under VAT and will get the benefit of input tax credit. Liquor, lottery tickets, petrol, diesel, aviation turbine fuel and other motor spirit will be outside VAT since their prices are not fully market determined. All exports will be exempt from VAT. Tax paid on inputs procured from other states through inter-state sale and stock transfer will not be eligible for credit. Tax paid on goods bought on or after April 1, '04 and still in stock on April 1, '05, will be eligible for input tax credit, subject to requisite documentation. The entire design of VAT with input tax credit is based on documentation of tax invoice, cash memo or bill.

FM may sweeten VAT pill, raise threshold to Rs 50 lakh

The threshold limit for VAT or value-added tax may soon be raised from Rs 40 lakh to Rs 50 lakh, with most states agreeing to adopt a more practical VAT.

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