The empowered committee of state finance ministers has decided to provide states the option to either exempt specific foodgrain from VAT or levy the merit goods rate of 4%, considering their socially sensitive nature, convenor, Asim Dasgupta told mediapersons here on Monday.
In addition, the committee also gave tea-growing states the freedom to impose 4% VAT on tea, instead of the general rate of 12.5% in the first year of VAT, since the tea plantation sector was facing serious difficulties. Again, the decision would be reviewed later.
All tax-paid goods purchased on or after April 1 04 and still in stock as on April 1 05 would be eligible to receive input tax credit, said Mr Dasgupta. Resellers holding tax-paid goods on April 1 05 would also be eligible for input tax credit. Inter-satte trade date would be totally computerised.
Under the VAT system covering about 550 goods, there will be only two basic VAT rates of 4% and 12.5%, plus a specific category of tax-exempted goods and a special VAT rate of 1% for gold and silver ornaments etc.
In general, all goods, inclduing declared goods, will be covered under VAT and will get the benefit of input tax credit.
The largest number of goods (270) comprising items of basic necessities such as drugs and medicines, agri and industrial inputs, capital goods and declared goods would be under 4% VAT rate. There will be about 46 commodities under the exempted category, including a set of maximum of 10 commodities which each state would be allowed to select from a broader appoved list for VAT exemption.
The exempted commodities include natural and unprocessed products in unorganised sector as well as items which are legally barred from taxation. The remaining commodities would be under the general VAT rate of 12.5%
The few goods that would be outside VAT as a matter of policy would include liquor, lottery tickets, petro products, as the prices of items are not fully market-determined. These items will continue to be taxed under the saless tax act of the respective states.
Mr Dasgupta said the committee did not want to include more commodities under the exempted category.
The central sales tax (CST) would be phased out after one year of VAT regime, to avoid the tendency among some traders to book local sales as CST.