VAT: an idea whose time has come
State
governments have
19 June 2004
Uday Chatterjee 19 June 2004
The
value added tax (VAT) regime was supposed to have been
imposed on April 1, 2003. Fierce opposition from the trader
lobbies and several state governments stalled the move
and the introduction of VAT was postponed.
The Haryana was the only state to go ahead with the imposition of VAT in 2003 and in a year''s time the state government''s tax collections had shot up by 30 per cent. This has opened the eyes of other state governments to the fact that if they wish to boost their revenues, then VAT is an idea whose time has come.
On Friday, June 18, finance minister P Chidambaran convened a meeting of the state finance ministers to discuss the implementation of VAT. The position now is that almost all the states have agreed to implement VAT , effective April 1 2005.
The unique feature of the VAT system, which is in use in several developed countries, is that it ushers a ''win-win-win'' situation for all the concerned parties. In other words, it is beneficial to the consumer, the businessman and the government.
The principle under which VAT works is that tax is only paid for the ''value -added'' component of a taxable product or service. To illustrate, let us consider an example, say, of a textile processor. If he buys raw material, i.e cloth from the market, for Rs10,000 and under the present taxation system, if he has to pay a tax of 10 per cent, his cost of raw material becomes Rs11,000.
