Panel to examine VAT structure, deviations

NEW DELHI: State tax regime could be in for a facelift. State governments have finally come around and have decided to evolve common value-added tax rates sans deviations.

The empowered committee of state finance ministers that discussed the issue at its last meeting early this week has set up an expert group to look into the VAT structure and deviations in rates that existed across the states, sources told ET. The expert group comprises commissioners of sales tax from all states.

Bihar deputy chief minister and finance minister Sushil K Modi said, ���The panel has set up a committee to examine the issue of deviation in detail. The committee will give its recommendations in three months.���

The empowered committee has permitted each state to exempt 10 items out of a list of about 50 items of ���goods of local importance��� to charge an appropriate rate of tax.

Industrial intermediate goods and raw materials are to be taxed at the floor rate of 4% while the rate of 12.5% is the general VAT rate. Most of the state governments have surpassed the empowered committee permissible level of 10 items. States like Kerala which has imposed higher value-added tax rate of 20% on certain luxury items.

Some other states have imposed a lower rate of VAT on certain consumer goods that impacts businesses in neighbouring states. The deviation issue has been hanging fire for some time now with the centre has asking the states, time and again to bring about uniformity in the rates.

Various industry bodies and trade associations have also demanded that states to correct the deviation in the structure. It may be pointed that under the unified goods and service tax regime that is to roll out from the 2010, such deviations would not be possible except for petroleum products.