New Delhi, Nov 16: All states and union territories will implement uniform floor rates of sales tax from January 1, 2000, and VAT from April 1, 2001. They will also phase out sales tax-based incentive schemes including revised definition of backward areas eligible for this scheme. These were among the major decisions taken at the meeting of chief ministers and state finance ministers, said Union minister of state for finance Dhananjaya Kumar. The meeting was held here on Tuesday.For various commodities, there would be four minimum floor rates of 0, 4, 8 and 12 per cent, Kumar told mediapersons. There will be two special floor rates of 1 per cent (for bullion, gold and silver articles, precious stones) and 20 per cent (for liquor, molasses, narcotics). It was decided at the meeting that the 14-month interim period will be used for preparation, training of personnel, computerisation and publicity for the implementation of VAT, Kumar said, adding that the Centre will compensate states if they lose revenue in the initial period. The National Institute of Public Finance and Policy (NIPFP) will provide technical assistance.
"The introduction of VAT would not cause any revenue loss. In fact, we expect that the revenue would be enhanced," Kumar said.
Another conference of chief ministers will be called in the middle of January next year to review the implementation of these decisions, the minister said. A standing committee of state finance ministers will be constituted to monitor these decisions with secretarial assistance, he said.
The standing committee is mandated to expedite the preparation for VAT and rationalise the CST, he said. The committee will look into the changes required in legislations, discuss the issue with trade and industry, monitor the upgradation of systems and training of the personnel concerned for the new tax regime.
There was broad consensus at the meeting to rationalise the central sales tax, Kumar said.
"The decisions will go a long way in achieving tax reforms," he saidThe minister pointed out that the sales tax floor rates would help check the unhealthy competition among states of bringing down rates to woo investment. It is not the tax rates but other factors like infrastructure which attract investment, he said.
Elaborating the point, NIPFP director Ashok Lahiri said that often there is a "tax war" among states. When one state reduces tax rates, others are forced to do the same, he said.
"Some states have said that they would go for the floor rates even if others do not accept them," Kumar said.
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