FinMin told to monitor price of goods under Vat
The empowered committee of the state finance ministers has urged the Union finance ministry and other other Central ministries to monitor the price level of Vat commodities which should have come down after the implementation of the new tax regime.
Although the Consumer Price Index (CPI) slipped from 5% in April to 3.7% in May and further to 3.3% in June, the committee is concerned about rising prices of certain Vat commodities, said empowered committee convenor and West Bengal finance minister Asim Dasgupta. He was talking to media after a meeting of the committee here on Wednesday.
“Index is an average concept. Prices of some commodities have risen. We are particularly concerned about those commodities, where prices have gone up despite reduction in Vat rates,” he said.
The committee, he said, wanted finance ministry officials and other ministries concerned to hold regular meetings to monitor prices of Vat commodities.
On passing the benefits by manufacturers to the consumers, he said, “It is not happening countrywide.” To a query whether punitive action would be taken against those not factoring in Vat in the maximum retail price (MRP), Mr Dasgupta said the panel would recommend such action only after discussions with the finance ministry. “Persuasive efforts do also bear fruits”, he added.
Besides prices, another issue affecting Vat was non-issuance of cash memos and invoices, he said, adding trade associations and chambers have assured the Vat panel that they would be cooperating with it on this matter.
Mr Dasgupta also said revenues of states have gone up after the Vat implementation.
Source: financialexpress.com
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.
8/13/2005
Vat panel to meet on Aug 24
Empowered committee of state finance ministers will meet on August 24 to discuss post-Vat implementation issues, including uniform floor rate (UFR) of tax on bullion. “The committee will meet to discuss the implementation issues that have come up after introduction of Vat,” empowered committee secretary Ramesh Chandra said.
When asked whether the complaint of the Delhi government about shift in bullion trade to Rajasthan and Gujarat because of less tax rate in the two states would be taken up, he said all implementation issues, including this one, would be discussed at the meeting.
Delhi has complained to the Vat panel about less than UFR tax on bullion in Rajasthan and Gujarat because of which the trade on precious items is being shifted to the two states.
Considering Delhi’s complaint, the Vat panel at its meeting on July 9 had decided that all states would impose at least 1% tax on bullion from August 1.
More: financialexpress.com
Despite compensation claims, picture is positive
With the first round of compensation claims from states coming in, the government’s expectations that revenues in the new Vat regime would only go up, may be belied. Yet, the fact that post-Vat revenues have, on average, kept pace with the historical growth rates of sales tax revenue, barring a few states like Andhra and Maharashtra, is a positive signal.
Andhra has sought compensation of Rs 193.80 crore and Bihar Rs 100 crore for Q1, and Maharashtra around Rs 340 crore for April-May alone. While the Centre has asked for some reworking of the numbers, officials have reportedly admitted that Q1 losses alone for Maharashtra and AP could cross Rs 100 crore each. It is too early to say if the Rs 5,000 crore (and a subsequent Rs 100 crore for UTs in the supplementary demand for grants) set aside for compensation, will suffice. The provision accounts for less than 10% of total sales tax revenue collections. It remains to be seen if the ground reality would match such optimistic anticipation.
Evasion attempts and confusion have both played a role here. AP, for instance, expects a revenue loss of Rs 800 crore for the year; it has found dealers suppressing sales in the state to avoid taxes. It is also understandable that states like Maharashtra, where the average sales tax rate is 18%, will incur revenue loss on account of Vat. But there’s good news as well. Karnataka’s growth in registration of new dealers of about 20% under Vat has enhanced its revenues. Delhi has the highest growth of 30% in Q1. And June was better with an average 15% growth in revenues than the average 12% in April and May for most states, when implementation became more uniform and stable. Besides, sales tax revenues have been buoyant over the recent years, and although the new system may reduce collections initially due to teething problems, post-Vat revenues are expected to grow with a broader base.
More: financialexpress.com
7/14/2005
VAT: Coming! Special a/c to compensate States
Finance Ministry will soon create a separate account under the head ‘Special grant-in-aid’ for compensating States for any revenue loss after implementation of value added tax.
“The Centre will open a special account. The compensation to States will be treated as special grant-in-aid,” official sources said, adding the government has already provided Rs 5,000 crore in the budget for this purpose.
At present, States receive a share of central taxes and also grants from the budgetary allocation. The formula for these central transfers to States is determined by the Finance Commission.
Since compensation for revenue loss can neither treated as a share of central taxes or developmental grants provided in the budget, there was a need to create a separate account for that, sources said.
Last week, Finance Ministry agreed to provide monthly ad hoc compensations to States whose actual revenue growth from VAT falls short of the trend rate of growth.
The empowered committee on VAT had expressed reservation on the earlier compensation method based on Auditors General’s reports, which comes only after a quarter. Accordingly, Centre relaxed the rules as the tax figures are not available with AG till the end of each quarter.
More: financialexpress.com
7/12/2005
States agree to work out Vat losses as per new formula
All 21 states implementing value added tax (Vat) on Saturday agreed to the Union finance ministry proposal to work out the compensation for any Vat-induced revenue de-growth after factoring in the floor rates ratified at the April 27 meeting of the empowered committee.
The Centre earlier wanted the November 4 formula to determine the compensation amounts.
On April 27, the empowered committee had enlarged the exemption list and brought all industrial inputs, capital goods and medical equipment under merit rate of 4%.
Saturday’s meeting of the committee also took note of the tendency among “some industries” not to pass Vat benefit (lower incidence) on to the consumers, and decided to call a meeting of these industries within a fortnight.
More: financialexpress.com
7/11/2005
Vat compensation process simplified
To simplify the Vat compensation process, the finance ministry has waived the requirement of prior Accountants General certification for sanction and release of amounts. According to a senior ministry official, states will get compensation for any revenue loss on Vat every month, without prior nod of AGs. The Centre, which had committeed to compensate the states for any Vat-induced revenue loss, will make monthly provisional release of amounts. Verifications could be done once or twice in a year, if there were major discrepancies, he added.
The empowered committee of state finance ministers would meet here on Saturday to take stock of the Vat experience in terms of implementaion, price movements and issues relating to compensation.The Centre is yet to take a final view on the central sales tax (CST) on inter-state transactions, which is collected and appropriated by states. Admitting that CST, being an origin-based tax is a “misfit” in the Vat regime, the official said any “CST reform” would probably have to wait until the compurterised system (Tinexys) for tracking inter-state transactions became fully functional. As per the plan, Tinexys would be fully operational by March 31, 2006.”CST has a distorting effect on the Vat system. But its reform and intergration into the Vat system would be possible only if a credible system for tracking inter-state trade is in place,” the official said.
Finance minister P Chidambaram had earlier indicated that CST which is levied at the rate of 4% now would be halved to 2% in 06-07 and removed totally beignning April 1 2007.
More: financialexpress.com
7/6/2005
Philippine Vat law suspended; new setback for Arroyo
The Philippine Supreme Court suspended a value-added tax law at the center of embattled President Gloria Arroyo’s plan to curb government debt that’s tripled in seven years and which prompted Fitch Ratings to raise its outlook on the nation’s junk debt rating in May.
The law, which extends the tax to fuel and other previously exempt products, is suspended while judges decide on at least four petitions to strike it down, the court said in a resolution received through fax and confirmed by spokeswoman Gleo Guerra.
The law was passed in May and took effect today. The petitioners asked for it to be struck down because of what they say is an unconstitutional provision that gives Arroyo the authority to raise the rate to 12 percent in January next year from the current 10 percent. The suspension is yet another setback for Arroyo who is facing calls to resign over allegations she rigged last year’s presidential vote count.
‘It’s a negative’’ for Philippine bonds and the peso, said Davide Fernandez, a vice president at JPMorgan Chase & Co. in Singapore. ‘‘This is a surprise.’’ The government had said expanded coverage and the higher rate would allow it to end budget deficits by 2008, two years ahead of schedule.
More: financialexpress.com
China scraps Vat exemption for export-oriented steel products
China, the world’s largest steel-maker, on Friday announced scrapping of the value-added tax exemption for home-made steel products used for exports, the ministry of finance said here.
China began offering the tax exemption in 1998 when prices of home-made steel products were higher than world market prices and downstream firms imported steel products from overseas in huge quantities, causing great difficulty for domestic steel producers.
A document issued by the ministry in cooperation with the state administration of taxation noted that the tax privilege had been very helpful in supporting domestic steel firms in turning out steel products in short supply in the country and improving their industrial mix.
But things have changed in terms of the steel trade situation at home and abroad as steel prices in China are lower than that of the world market. Also, steel production causes too much pollution and consumes too much energy and other resources, the ministry said.
More: financialexpress.com
Skipping Vat may cost Tamil Nadu firms dearly
That one step by the Tamil Nadu government—to skip implementing the Value Added Tax (Vat)—may cost its industry crores of rupees every year. And if this is not rectified, firms in the state may have no option but to look for alternate sites. This is the impression one gets from the response of a cross section of industrialists and associations about cost of doing business in Tamil Nadu.
The state has a sound industrial base and its manufacturing sector is upbeat about capacity expansion. It continues to attract substantial fresh investments and is considered a hot destination by both foreign and domestic players. However, “the state government’s decision to not implement Vat will have an adverse impact. Since it is a manufacturing hub for a number of products, for firms based in Tamil Nadu, the cost of doing business outside the state may rise. This will affect our competitiveness in the long run”, says a leading industrialist who does not want to be quoted.
A senior official from Sundram Fasteners Ltd agrees the cost of business in Tamil Nadu might increase because of the lack of introduction of Vat. “The state has not introduced Vat, because of which we may not be as competitive as other states. However, we do not see any problem with the governance. Of course there are delays in getting sanctions, but we are willing to accept delays. As for infrastructure, Tamil Nadu has one of the best infrastructure base in the country,” says he.
More: financialexpress.com
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