VAT may knock prices down by 10%

Thiruvananthapuram, Dec 10 | Updated: Dec 10 2004, 05:30am hrs
The switchover to value-added tax (VAT) in April 2005 could lead to a price fall in consuming states, said chairman of the empowered committee of state finance ministers on VAT Ashim Dasgupta. For example, in a state like Kerala that buys rice from Andhra Pradesh, textiles from Maharashtra and construction marbles from Rajasthan, prices could ease 5-10%.

Using Kerala as a case study, an estimate by the empowered committee had found that end-consumers could experience a fall as high as 10% in prices of goods, Dr Dasgupta said. No tax will be levied when goods are transferred from one state to another.

The price fall could come through two routes. One, the set-off on Central sales tax to the trader in the state of origin. Two, full set-off on tax paid on inputs at present, 3% tax is collected on inputs. The estimate on price fall in Kerala took 526 items into account.

Another noteworthy example is that of Haryana, which experienced 30% improvement in tax collections after its pilot strides in VAT. Realising this, 26 out of 29 states are nearly ready for the transition by March.

Even the three dilly-dallying states - Uttar Pradesh, Mizoram and Arunachal Pradesh - have finally come around to the VAT path, Dr Dasgupta told FE.