VAT likely to be imposed on imports too

New Delhi, Jan 17 | Updated: Jan 18 2005, 05:30am hrs
Sooner or later, imports may come under the purview of value-added tax (VAT). Official sources told FE that a proposal of the empowered committee of state finance ministers to bring imports in the VAT chain was being considered by the finance ministry.

However, finance minister P Chidambaram is unlikely to exercise this option in the forthcoming budget. It is reckoned that VAT regime would need to settle down before the new impost could be brought in. Imposition of the VAT an alternative to sales tax on imports would require an amendment to the constitution.

Explaining the rationality behind the move, the sources said that idea of imposing VAT on imports wasnt incompatible with any multilateral obligation of the country, including those under the World Trade Organisation. VAT could be imposed on imports even as the government was keen to progressively reduce customs duties to the Asean level, the sources said. Also, since VAT permits input tax set-off, imposing it on imports would not result in any cascading effect.

The empowered committee has had a round of deliberations on the propoosal with the finance ministry, sources said. North Block is learnt to have indicated that it was not averse to the idea.

VAT on imports would require establishment of suitable tax collection mechanism as also adequate safeguards for protection of interest of land-locked states.

VAT or its equivalents on imports exist in many Asian countries, at an average rate of 4-5%.