To lay the blame for the postponement of the move to a nationwide Value-Added Tax system at the doorstep of the terrorist attack near the doorsteps of Parliament on December 13 is an ingenious ploy. The introduction and discussion of so many Bills has so often been disrupted by the terror tactics of members of Parliament inside the august house that no one is going to take this explanation, howsoever valid, very seriously. Rather than cynically allude to the December 13 attack and its disruption of the winter session of Parliament, the convenor of the empowered committee on VAT and the union finance ministry should simply have told the truth that there is a valid basis for a postponement of the time table for VAT. The fact is that neither the union finance minister nor many state chief ministers are ready to move to a nationwide VAT. Finance minister Yashwant Sinha is aware of the fact that there may be some revenue loss in the first year from the very introduction of VAT. If the movement to a full VAT is accompanied by the centre conceding to the demands of the state governments, namely to compensate them for any revenue loss and to abolish the central sales tax, the move could then cripple central finances altogether.
Many state governments have openly stated that they would oppose VAT if it is not accompanied by fiscal support from the centre and a transfer of certain central revenues to the states. Is this the correct year in which to take such risks From Mr Sinhas point of view, certainly not. Mr Sinha faces a yawning revenue gap and is committed to bridging it by boosting revenues rather than cutting expenditures. He cannot afford to either forego CST or compensate state governments for the revenues they may lose by moving to a full VAT. All these are legitimate concerns in a normal year. More so in a year of slow growth, especially when industrial growth has plunged. Many fiscal experts had criticised Dr Manmohan Singh, Dr Raja Chelliah and Mr P Chidambaram for introducing far-reaching changes in tax regimes without worrying too much about their revenue implications. Everyone is worried about the low tax/GDP ratio. Clearly, there are reasons other than 12/13 delaying VAT.