40% Drop In Business Due To High VAT Rate In AP
The Federation of All India Tea Traders Association (FAITTA) and Indian Tea Association (ITA) appealed today to the Andhra Pradesh Government to implement uniform VAT rate of four per cent on tea as recommended by the Empowered Committee (EC) of state Finance Ministers.
While this recommendation was accepted by many States including West Bengal, Assam, Delhi and Karnataka, Andhra Pradesh was still to implement it, leading to a 30-40 per cent drop in business in the state, tnhey said, adding, as a result, tea, an acknowledged common man’s drink in India, would now become dearer.
The associations said in a joint statement that classifying tea under 12.5 per cent category in a few States would deny level playing field for consumers and traders, which could lead to unhealthy trade practices. The high rate of VAT within the State of AP had resulted in increasing cross-border infiltration from neighbouring states, which had cheaper VAT rate on tea. Landed price of tea in states placing tea in 12.5 per cent category was expected to be over 16 per cent, which might result in price hike by 8-12 per cent, amounting to a rise of Rs 10-20 per kg compared to neighbouring states.
With 40 per cent of market under “loose tea” small and local traders would be adversely affected and the State would lose business in the long term, they said.
Assocham seeks to waive 4% VAT on ice
In a memorandum submitted to the Empowered Committee of State Finance Ministers, the Associated Chamber of Commerce and Industry of India (Assocham) has sought waiver of four per cent levy of value-added tax (VAT) on ice arguing that it has put a large number of exporters of frozen products into undue hardships, rendering their export transactions non-competitive in international market.
Ice has always been exempted under the Central Excise Tariff and Sales Tax Acts of various States. The chamber also pointed out that States such as Bihar, Orissa, West Bengal, Kerala and Karnataka continue to exclude levy of VAT on coconut oil while other VAT executing States do levy the tax on coconut oil at the rate of four per cent. This non-uniformity has lead to diversion of trade as a result of which consumers across the country get coconut oil at different prices, says the chamber asking the empowered committee to take necessary corrective measures in this regard.
Source: sify.com
Delhi, Maharashtra likely to fix bullion Vat rate at 0.25%
Delhi and Maharashtra might lower valued added tax (Vat) rate on bullion to 0.25%, as consensus on introducing uniform floor rate for precious metals seemed difficult to be arrived at in the empowered committee’s meeting on Wednesday.
“At the moment, consensus does not seem to be emerging on the issue at the Vat panel’s meeting on Wednesday. If that happens, we will reduce Vat rate on bullion to 0.25%,” Delhi finance minister AK Walia said during the meeting of the sales tax commissioners of the Vat-implementing states here.
“We will first try to evolve consensus on the issue, but if that does not happen, we will be forced to lower the Vat rate on bullion,” Maharashtra sales tax commissioner BC Khatua said after the meeting.
The meeting, attended by empowered committee chairman Asim Dasgupta and secretary Ramesh Chandra, provided a forum for an interaction among sales tax commissioners of different states prior to detailed discussions with the finance minister on Wednesday.
Bullion trade is shifting from Delhi and Maharashtra to Rajasthan and Gujarat because of the difference in the tax structure on precious metals.
While Delhi and Maharashtra have 1% Vat rate on bullion, Rajasthan and Gujarat levy 0.25% sales tax on it.
8/23/2005
VAT, vertical integration of industry
Some economists have argued that a cascading turnover tax induces vertical integration of business enterprises while the value-added tax (VAT) does not favour or disfavour vertical integration.
With a cascading turnover tax there is a strong incentive for firms to integrate vertically to the detriment of economies of scale in a given line of production. The manufacturer may absorb the wholesaler and the retailer (or vice versa) to avoid the cumulative tax.
For example, since there is sales tax for every transaction of sale of parts, which are assembled to make a motorcar, it is better to make the parts in the same shop floor so that no sale is involved.
Similarly, for every manufacture of parts, there is excise duty that is to be paid if it is bought from another factory. So it is better to manufacture it in the same factory so that no extra excise duty is payable.
Integrated businesses experience lower tax burden than non-integrated (differentiated) businesses under cascading system of tax. So non-VAT type sales tax and excise duty promote vertical integration or self-supply. This is the substance of the argument.This, however, is not tenable for these reasons:
This argument is based on the static assumption that the same high rate of sale tax or excise duty is charged even if no input credit is allowed. In effect, the rate of duty can as well be decreased if no input credit is given. Let us assume that the excise duty is 16 per cent, which is now the median rate in India. Let us also assume that input credit on average comes to about 7 per cent for all industries. So the net rate comes to 9 per cent. Now if this 9 per cent is charged as excise duty rather than 16 per cent and then giving 7 per cent input credit, the net effect will be the same in both the situations.
Once the tax rate is lowered taking into account the average input cost on the basis of an industrial average, the net effect on integration in factories will be the same.
Self-supply or vertical integration may not be economically bad either. It may also serve as a socially useful purpose in mitigating the distortion of input choices that might otherwise arise.
For example, if security service has to pay the service tax, which is not credited in a factory-manufacturing car, an in-house security system can be built-up. Or a gear for a car can be manufactured within the factory so that the sales tax or the excise tax is not to be paid. This by itself may not be economically undesirable.
Moreover, these services and products can be made to pay tax even if they are produced or manufactured in-house.
This is the position in India that goods manufactured within a factory and used in the ultimate manufacture of the final product are also taxable.
So from the point of view of revenue collection, it will not make any difference. And if intermediate goods are made taxable, which indeed they are in the case of excise, the inducement to vertical integration does not take place.
8/22/2005
Hopeful signs for implementation of Vat
Fears that Vat implementation will mean a revenue loss have, fortunately, not been borne out. The finance minister says revenues from Vat in the 21 states that have implemented it have risen by 15.3% in the first quarter. Good news, but a clarification is in order. The actual or net increase under Vat is about 5% or so, because even under the earlier sales tax, most states would have seen revenues increase by about 10%, due simply to the nominal growth (real growth plus inflation) in states’ GDP. This is also the basis for calculating the losses incurred by any state for claiming compensation from the Centre. Till the end of July, only four states (Andhra, Maharashtra, Bihar and Tripura) are known to have filed loss claims.
But the good news needs to be emphasised, as this should prompt the Centre to review its plans for phasing out the central sales tax (CST) and for non-implementing states to reconsider their stand, as the costs of not doing so are clearly high and rising. As expected, states that had, on average, higher sales tax levels, such as Maharashtra, Kerala and Andhra, have seen only a marginal growth (decline in real terms) in their revenues from Vat. Others, which had a lower sales tax regime, have seen whopping increases in their revenue collections. Orissa tops the list with an increase of 35%, Delhi by 30% and Karnataka and Himachal Pradesh by 27% and 20%, respectively.
A strong positive attribute of a Vat regime is the uniformity in tax rates across all implementing states. This has largely been achieved. Some anomalies, however, continue to remain, like Punjab refusing to raise the rate on diesel from 8% and Haryana and Delhi continuing with 12.5%, when the agreed rate is 20%. Similarly, Andhra, Bihar, Orissa and Goa continue to charge 12.5% on tea, while the agreed rate is 4%. This is unacceptable. State governments must rise above short-term political considerations and work for a common national good.
The Empo-wered Committee has institutionalised another variation, in its decision of July 9, to allow states to charge only 4% on industrial inputs, where more than 50% of the production is used as an input for further production and presumably exported. This has been ostensibly done to help manufacturers, by reducing the amount of credit accumulation. This can result in another distortion, similar to that arising from central excise exemptions currently available for some states/ regions. Improving the refund mechanisms and adopting a uniform rate would be a more effective measure.
8/18/2005
Mumbai rains, VAT wash away rakhi sales
VAT in state has forced the customers to migrate to other markets such as Ambala, Delhi & Kolkata
Chandan Kishore Kant / Mumbai August 17, 2005
With the festival of Raksha Bandhan just round the bend, rakhi sellers in Mumbai are finding the business a loss making proposition.
In fact, the market is so depressed that retailers expect the prices to dip further in the run up to the festival. If the floods of last month was the main culprit, then value added tax (VAT) is turning out to be other sore point.
Retailers complain that customers never give the full price. “We are just trying to liquidate our stocks, managing with a marginal profit. This year, we did not get customers from Mumbra, Kalyan or Thane. Even on a holiday such as Sunday, we do not see significant sales,” said a retailer from Bhuleshwar.
The price range in the wholesale market is Rs 3-48 per dozen and in the retail market it is between Rs 24-120 a dozen.
“Last year, we had long queues of customers in our shop, but things are quite different this time,” said a retailer from Masjid Bunder.
More: business-standard.com
VAT: Centre to compensate states
The Finance Minister, P Chidambaram, on Tuesday urged Uttar Pradesh and Gujarat to implement VAT and assured that any State suffering loss due to its imposition would be compensated by the Centre.
He said that though VAT is a State tax replacing the sales tax with the Centre acting just as a facilitator, the Union Government would compensate 100 per cent loss during first year, 75 per cent during second year and 50 per cent during the third year.
Trying to allay the apprehensions of people, he said that imposition of VAT has not resulted in more burden on consumers as indicated by the low rate of inflation since its imposition.
About the reluctance of Gujarat and Uttar Pradesh Chief Ministers to impose VAT, the Minister said that he was ready to meet them anywhere anytime to allay all their apprehensions regarding VAT, which he described as an “efficient revenue increasing and transparent system of tax collection".
More: sify.com
‘VAT had no impact on consumer prices’
According to Finance Minister Mr Chidambaram one could not draw any definite conclusion on the effects of VAT based on just first quarter results.
The introduction of Value Added Tax (VAT) system in states replacing sales tax has made no adverse impact on consumer prices and revenue earnings under the new tax regime have shot up by 15.3 per cent during first quarter of current fiscal, Finance Minister P Chidambaram said on Tuesday.
Studies conducted by trade bodies have shown that introduction of VAT has no adverse effect on prices in the country and both Wholesale Price Index (WPI) and Consumer Price Index (CPI) have come down to under four per cent, he said while replying to supplementaries during Question Hour in the Rajya Sabha. He said while WPI at 3.84 per cent is the lowest in two years, the CPI has been veering around 3 to 3.5 per cent.
Mr Chidambaram said the rate of increase or decrease in tax revenues after introduction of VAT depended on corresponding sales tax rate that prevailed before introduction of the new tax regime. The Finance Minister said no definite conclusion could be reached about effects of VAT based on the first quarter results.
More: deccanherald.com
8/16/2005
VAT, first step towards integrated tax structure
India has one of the highest tax rates in the world with a narrow tax base, while with value added tax (VAT) one can capture a greater tax base and, through effective implementation, awareness and compliance ensure greater registration of dealers and record maintenance,” said M Gopalakrishna, chairman, Andhra Pradesh State Financial Corporation (APSFC).
Delivering the keynote address at the two-day Southern Regional Conference of the Indian Institute of Materials Management (IIIM) that began here today, he said that VAT would eliminate the cascading effect of sales tax and was the first step towards a comprehensive, integrated goods and services tax.
Inaugurating the conference on ‘Value Added Tax (VAT) and its impact on Supply Chain Management (SCM)’, organised by the Hyderabad chapter of the IIIM, Andhra Pradesh commissioner of commercial taxes, V Bhaskar, said that there was a need to look into the differential treatment of capital goods, industrial inputs and other goods while imposing VAT.
IIMM president, K Bharadwaj, said that the materials manager and the supply chain manager have to equip themselves to the changing materials management scenario under the VAT regime.
He said that IIMM had recently launched an MBA programme in materials management with M P Bhoj Open University of Bhopal and has plans to start a PhD programme too.
More: business-standard.com
Workshop for realtors on service tax, VAT
The Confederation of Real Estate Developers Associations of India (CREDAI) and its member association CREDAI NCR are jointly organising a workshop on service tax, value-added tax (VAT) and income tax for real estate developers, agents, construction companies, architects and interior decorators.
The workshop would be held in the Capital on August 20.
“This workshop will provide a platform to all concerned people of the industry to interact and participate in discussions with the experts on the current developments and issues relating to service tax, VAT and income tax implied to real estate,” Kumar Gera, Chairman, CREDAI, said in a statement.
More: sify.com