Retaining Local Taxes Must For Sustaining VAT

New Delhi, November 29: | Updated: Nov 30 2002, 05:30am hrs
The empowered committee on Value Added Tax (VAT) has expressed confidence that states will get back the powers to impose additional excise duties (AEDs) on major items like textiles, sugar and tobacco and pitched for retention of local taxes after introduction of the new tax regime from April 2003.

States are expected to get back the powers to levy AEDs in the three items - textiles, sugar and tobacco. This will be a very important gain, the committees chairman Asim Dasgupta told reporters here on Friday.

The three items were initially taxed by the states before 1957. But, subsequently centre had taken back the powers and imposed AEDs, which were passed on to the states.

The West Bengal finance minister also said the committee would pitch for retaining local taxes like mandi tax and entry taxes, saying it will be difficult to part with these taxes at least for the transitional phase.

One has to watch the situation very carefully. Otherwise, VAT may not be sustainable to the states, he said.

Although the empowered committee will lose its relevance after April 2003, a VAT council may be set up with representation from all the states, to monitor the revenue situation and come up with necessary policy initiatives. The grant of power to states for taxing these items and retention of local taxes was being considered in the wake of the expected loss in revenue on implementing the nationwide VAT from next fiscal.

Although Mr Dasgupta endorsed centres assurance of 100 per cent compensation for the revenue loss in the first year, he said the government was yet to come up with the pattern of relief package to the states.

Referring to VAT legislations drawn up by states, Mr Dasgupta said certain distinctive features must be retained.

The VAT legislations will be similar instead of being uniform as states will be given the freedom to tax certain items which are relevant to them.