VALUE ADDED TAX

VAT is nothing but sales tax at source. Instead of collecting it after five months or so, the state governments would collect the same in advance and then allow set-offs to the businessmen. All tax paid on inputs, subject to rules made, shall be allowed to set-off against the tax on output. There would be exceptions like CST not allowed to be set off if sales are made locally in some other state; octroi not to be set off against output tax, etc.

What about Central Sales Tax Act, 1956? Well, this will remain and might be the biggest stumbling block for successful introduction of VAT in India. Double taxation under the Central Sales Tax Act, even for declared goods under Section 14, has been permitted. But the
biggest problem is that the central sales tax paid by the businessmen will not be allowed to be set off against local output tax payable. A city like Delhi will suffer the most.
State governments have agreed not to start new incentive schemes giving sales tax exemptions. 'C' forms have been made mandatory even when the local sales tax is less than 4 per cent. 'C' forms are required even when sales are made from sales tax free zones. Therefore, the power given to the state government under Section 8(5) of the Central Sales Tax Act is now virtually redundant as even if the sales tax is reduced to zero, the 'C' forms would still be required. It would be a difficult scenario for local VAT and CST to co-exist. Single VAT, which should be a combination of sales tax, service tax and excise duty is what we should have aimed for.
Necessity of Value Added Tax: The General perception of the existing single point sales tax system is that it is highly complex with multiplicity of rates, plethora of explanation, many rates in some group of item, extensive use of statutory forms, high and unrealistic quota of assessment, loss of revenue on value additions, Tax rate war between States , etc. The consensus was that a new system is needed and Value Added Tax has emerged as a principal instrument of taxing domestic consumption world wide during last four decades. It is now in operation in more than 100 Countries. The basic advantages of Value Added Tax can be stated as its neutrality, transparency, certainty and self policing mechanism.

State Value Added Tax.


The discussion regardings the VAT and the implementation which is being planned is only confined to the State. There is no proposed Central VAT at present in the time frame of 1.4.2003. All the States are drafting their separate Value Added Tax Act and as per the present position, every States will have a separate VAT Act with different provision not corresponding with each other. It can be stated that the proposed VAT Act is the primary stage of VAT. It is proposed that there would be Two tax rate slabs on which tax would be levied. The first one would be 4% and would covered all essential items. The second one is 10% and all luxury items would be covered. In addition special rate slabs are also proposed which are 1% for bullion and jewellery, 20% for Non Essential Goods and exemption to certain goods like agricultural produce etc. Petroleum products are not included in VAT rates. Separate rate would be notified for them.


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