TN relents stand on VAT, to change over from April'03

CHENNAI: The Tamil Nadu government has relented its earlier tough stand on adopting the value added tax (VAT).
The state is preparing to join other states in implementing the tax from April 1, ’03. On their part, the trade and industry want the government to come out with a draft legislation without further delay.
Official sources told ET, “With the Centre coming forward to compensate the states for the revenue loss due to the switchover to VAT, Tamil Nadu will also adopt the new system. Already, training is going on for officials. But the smooth transition to VAT depends on how soon it gets the compensation without much delay.�
At the CM’s conference in October, chief minister, J Jayalalithaa made it clear that the state, which is seriously affected by the recommendations of the finance commission, cannot take on the VAT scheme unless 100% compensation for the revenue loss is given until ’05, when the next finance commission’s recommendations will take effect.
The state finance minister, C Ponnaiyan has also reiterated that the implementation of VAT will have to wait till the Union government agrees that it would make good the VAT losses to the state exchequer.
The minister had claimed that implementation of VAT demanded phasing out of central sales tax, which would mean a loss of about Rs 900 crore. Also, the recommended revenue neutral rate of 12% would mean a further loss of Rs 500-600 crore.
Meanwhile, Madras Chamber of Commerce and Industry plans to meet next week with the state finance minister and officials to discuss the steps taken for adopting the VAT system. “The Chamber is keen to know the government’s thinking on the tax. Though it has come out with a discussion paper on the implementation of VAT, it has not yet announced its final policy,� chamber president, KV Shetty said.
He also said “Only three months are left this fiscal. But, Tamil Nadu has still not enunciated its own draft VAT legislation as done by other states. It is highly desirable that at least a model which the government intends to adopt is now listed on the website so that the assessees could evaluate the impact of the legislation.�
Members of MCCI’s expert committee on taxation said the proposals contained in the paper prepared by Dr Ashim Das Gupta, chairman of the empowered committee on the introduction of VAT, are welcome and are implementable. With all the States deciding to adopt the system from next year, Tamil Nadu has no option but to fall in line with them.
The Chamber also is supportive of the State Government’s stand on the centre compensating the revenue loss. However, once the State decides to implement it, there should not be other levies like surcharge, entry tax etc.,
CST is crucial to a number of industries in the State and its phasing out should be smoothly sorted out between the Centre and State. “We would like the State to create a congenial business environment so that the new tax system may not act as a disadvantage to them over other States.
Chamber spokesmen said the industries in the State are sourcing lot of materials from other States for value addition and their products also have sizable market outside. This should be considered by the State while implementing the tax. They also wanted auto components to be covered under VAT.