abhishreshthaa
Abhijeet S
This White Paper is a result of collective efforts of all the States in formulating the basic design of the State-level Value Added Tax (VAT) through repeated and candid discussions in the Empowered Committee of State Finance Ministers.
The State-level VAT, as elaborated in this White Paper, has certain distinct advantages over the existing sales tax structure. The VAT will not only provide full set-off for input tax as well as tax on previous purchases, but it will also abolish the burden of several of the existing taxes, such as turnover tax, surcharge on sales tax, additional surcharge, special additional tax, etc. In addition, Central Sales Tax is also going to be phased out.
As a result, the overall tax burden will be rationalized, and prices, in general, will fall. Moreover, VAT will replace the existing system of inspection by a system of built-in self-assessment by traders and manufacturers. The tax structure will become simple and more transparent. This will significantly improve tax compliance and will also help increase revenue growth.
While this State-level VAT has all these advantages, it is a State subject derived from Entry 54 of the State List, for which the States are sovereign in taking decisions. On these decisions on VAT, the States, through discussion in the Empowered Committee, have found it in their interests, to avoid unhealthy competition and have certain features of VAT to be common for all the States. These features will constitute the basic design of VAT.
At the same time, the States will have freedom for appropriate variations consistent with this basic design. This White Paper is a collective attempt of the States to strike a balance between this needed commonality and the desired federal flexibility in the VAT structure.
The White Paper also strikes a balance between what is possible in the VAT design to begin with and what can be improved upon in subsequent years as we gather more experience. The White Paper further mentions how after working out a consensus on this VAT design, nearly all the States either have finalized their VAT Bills by now or are in the process of obtaining Presidential Assent, or will reach that stage very soon. Even for one major State where there are some ground-level problems, a positive interaction with the Empowered Committee has recently opened up the possibility of resolving most of these problems.
These efforts of the States towards formulation of VAT design and its implementation have received full cooperation of the Finance Ministry, Government of India. At the same time, the Finance Ministry has never imposed their views on us. We, therefore, remain thankful to the former Union Finance Ministers –– Dr. Manmohan Singh, Shri Yashwant Sinha and Shri Jaswant Singh.
We are specially grateful to Shri P. Chidambaram, the present Union Finance Minister, for his active support over the last eight months, when he not only helped formulate the modality of Central financial support to the States for possible loss of revenue in the transitional years of implementation of VAT, but also took time off his busy schedule to participate with us in the campaign for VAT in the States.
It has always been fruitful to have interaction with Dr. Parthasarathi Shome, Adviser to the Union Finance Minister, for his insightful observations on the analytical structure of VAT as well as his reference to vast experience in the implementation of VAT. The Secretary, Revenue, Additional Secretary, Revenue and all the concerned officials of the Revenue Department of the Finance Ministry have helped us by participating in the discussions whenever we requested them, and also by assisting in various procedural matters.
Interaction with Dr. Govinda Rao, the Chairman of Technical Experts Committee on VAT and other members of the Committee has also been useful. We take this opportunity to thank all of them. Discussions with the representatives of trade organizations and chambers of commerce and industry at the national level as well as in the States have been relevant in assessing the ground level difficulties. Together with them, we are determined to overcome these difficulties in implementing VAT in the States.
We remain thankful to them, and our mutual interaction will take place regularly. Finally, this White Paper could be written only on the basis of lively support of the Finance Ministers of the States, and with constant help from the Finance Secretaries and the Commissioners of Commercial Taxes of the States.
The Commissioners of Commercial Taxes have often burnt their midnight oil, and their contribution should be particularly recorded. Shri Ramesh Chandra, Member-Secretary of the Empowered Committee had to carry on the difficult administrative task in the functioning of the Empowered Committee. We appreciate the efforts of Shri Chandra and the staff of the Empowered Committee.
Even after all these efforts, there may be some unavoidable shortcomings in this White Paper, which we will try to overcome as we learn more from the actual experience of implementation of VAT. With this background and the attitude, this White Paper is an expression of the genuine commitment of the States to the implementation of VAT from April 1, 2005, which we are all looking forward to.
The State-level VAT, as elaborated in this White Paper, has certain distinct advantages over the existing sales tax structure. The VAT will not only provide full set-off for input tax as well as tax on previous purchases, but it will also abolish the burden of several of the existing taxes, such as turnover tax, surcharge on sales tax, additional surcharge, special additional tax, etc. In addition, Central Sales Tax is also going to be phased out.
As a result, the overall tax burden will be rationalized, and prices, in general, will fall. Moreover, VAT will replace the existing system of inspection by a system of built-in self-assessment by traders and manufacturers. The tax structure will become simple and more transparent. This will significantly improve tax compliance and will also help increase revenue growth.
While this State-level VAT has all these advantages, it is a State subject derived from Entry 54 of the State List, for which the States are sovereign in taking decisions. On these decisions on VAT, the States, through discussion in the Empowered Committee, have found it in their interests, to avoid unhealthy competition and have certain features of VAT to be common for all the States. These features will constitute the basic design of VAT.
At the same time, the States will have freedom for appropriate variations consistent with this basic design. This White Paper is a collective attempt of the States to strike a balance between this needed commonality and the desired federal flexibility in the VAT structure.
The White Paper also strikes a balance between what is possible in the VAT design to begin with and what can be improved upon in subsequent years as we gather more experience. The White Paper further mentions how after working out a consensus on this VAT design, nearly all the States either have finalized their VAT Bills by now or are in the process of obtaining Presidential Assent, or will reach that stage very soon. Even for one major State where there are some ground-level problems, a positive interaction with the Empowered Committee has recently opened up the possibility of resolving most of these problems.
These efforts of the States towards formulation of VAT design and its implementation have received full cooperation of the Finance Ministry, Government of India. At the same time, the Finance Ministry has never imposed their views on us. We, therefore, remain thankful to the former Union Finance Ministers –– Dr. Manmohan Singh, Shri Yashwant Sinha and Shri Jaswant Singh.
We are specially grateful to Shri P. Chidambaram, the present Union Finance Minister, for his active support over the last eight months, when he not only helped formulate the modality of Central financial support to the States for possible loss of revenue in the transitional years of implementation of VAT, but also took time off his busy schedule to participate with us in the campaign for VAT in the States.
It has always been fruitful to have interaction with Dr. Parthasarathi Shome, Adviser to the Union Finance Minister, for his insightful observations on the analytical structure of VAT as well as his reference to vast experience in the implementation of VAT. The Secretary, Revenue, Additional Secretary, Revenue and all the concerned officials of the Revenue Department of the Finance Ministry have helped us by participating in the discussions whenever we requested them, and also by assisting in various procedural matters.
Interaction with Dr. Govinda Rao, the Chairman of Technical Experts Committee on VAT and other members of the Committee has also been useful. We take this opportunity to thank all of them. Discussions with the representatives of trade organizations and chambers of commerce and industry at the national level as well as in the States have been relevant in assessing the ground level difficulties. Together with them, we are determined to overcome these difficulties in implementing VAT in the States.
We remain thankful to them, and our mutual interaction will take place regularly. Finally, this White Paper could be written only on the basis of lively support of the Finance Ministers of the States, and with constant help from the Finance Secretaries and the Commissioners of Commercial Taxes of the States.
The Commissioners of Commercial Taxes have often burnt their midnight oil, and their contribution should be particularly recorded. Shri Ramesh Chandra, Member-Secretary of the Empowered Committee had to carry on the difficult administrative task in the functioning of the Empowered Committee. We appreciate the efforts of Shri Chandra and the staff of the Empowered Committee.
Even after all these efforts, there may be some unavoidable shortcomings in this White Paper, which we will try to overcome as we learn more from the actual experience of implementation of VAT. With this background and the attitude, this White Paper is an expression of the genuine commitment of the States to the implementation of VAT from April 1, 2005, which we are all looking forward to.