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| VAT makes oil
firms a worried lot
news |
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Our Economy Bureau
05 November 2001 |
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Mumbai:
Value-added tax (VAT) is yet to make an entry into the country,
but many companies have already become a worried lot. Those likely to
get affected have begun formulating strategies to counter its ill
affect. Like oil companies.
The basis for all the worry is this. While oil companies, having paid
VAT, will be allowed to get credit, or refund, of all local state
taxes they pay, besides VAT, in case of a sale transaction made within
the same state, the same benefit will not be given to them for
inter-state sale transactions. The tax paid in an inter-state sale
transaction is called central state tax (CST). The basic reason for
this bias is that CST is much lower in comparison to the state sales
tax.
Since CST is lower in comparison to the local state sales tax, most
oil companies prefer to sell their products in other states. While CST
is constant at 4 per cent, the local state sales tax varies between 2
to 35 per cent. However, this is likely to change once VAT comes into
practice.
The move may also hamper bulk buyers of oil products. As of now
inter-company oil sale transactions between Indian Oil Corporation,
Bharat Petroleum Corporation and Hindustan Petroleum Corporation are
not taxed. However, the arrangement is likely to get scrapped once VAT
is put into practice, in order to generate revenues.
For oil companies, one way to get out of the imbroglio is to show
sales as stock transfer from one state to another. Stock transfer is
not taxed at all on the ground that the company concerned is merely
shifting its finished product inventory from one state to another,
without indulging in a sale
transaction.
For this to happen, the concerned company will have to put in place
sale agencies or storage or depot outlets. This would involve making
huge investments and is therefore more easily said than done.
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