VATs implementation has been deferred more than five times since 2001. The last deadline missed was April 2003 because very few states were prepared with the necessary legislation. Many others stayed away fearing stiff resistance from traders.
Mr Dasgupta spoke to the media after a meeting with Union finance minister
P Chidambaram. This was the first meeting on VAT after the United Progressive Alliance (UPA) assumed office.
VAT could jack up revenues of states significantly and enable them to improve their financial health, Mr Dasgupta argued. The decision to switch over to the new tax regime was taken after Mr Chidambaram assured that states would not suffer on account of VAT.
There is a broad consensus among states to introduce state-level VAT beginning April 2005. The FM has given us assurance that states would be compensated on account of any possible loss of revenue, Dasgupta said, adding that only three or four states have objections on VAT. He did not name any state. It is learnt that UP isnt playing ball.
Confederation of Indian Industry (CII) director-general N Srinivasan appeared relieved. This is a forward looking development. Industry was demanding it for a long time. This is a starting point for the implementation of a comprehensive country-wide VAT, Mr Srinivasan said, a day after taking over his new position.
Associated Chambers of Commerce and Industry of India (Assocham) president Mahendra K Sanghi said the decision will help India to have a common market. VAT should, however, ensure that all the state and the municipal taxes are fully integrated with this to avoid multiplicity of taxes, he cautioned.
PHD Chambers of Commerce & Industry of India (PHDCCI) president Ravi Wig said: The government should use the intervening period for dispelling doubts and draw a roadmap for implementation including legal framework so that trade and industry is able to understand its implications and becomes supportive in smooth transition to VAT regime.
The Society of Indian Automobile Manufacturers (Siam) welcomed the decision to implement VAT. This has been one of the long standing demands of the auto industry, Siam said.
Meanwhile, Mr Dasgupta said the details, quantum and periodicity of the compensation will be worked out by FinMin. Any possible loss on account of introduction of VAT or Central sales tax may be examined and compensated for on a positive attitude by the Central government, Mr Dasgupta said, referring to Chidambarams assurance.
Traders with turnover up to Rs 50 lakh would be exempted, Mr Dasgupta said, adding that it would be a civilised system doing away with inspector raj at the lower levels. Keeping in view the federal structure, flexibility would be allowed to goods of local importance, he said.
States had earlier demanded a package including compensation for any loss of revenue when states switch over to VAT for which budgetary allocation was also made by the National Democratic Alliance government.
The meeting of state FMs with Mr Chidambaram followed his discussion with Dasgupta a few days ago.
Though the common minimum programme has expressed commitment for an early introduction of VAT, Mr Chidambaram has made it clear that it would be implemented only after all arrangements are made so that the decision becomes irrevocable.
Discussions will continue with states, industry and trade on the implementation of VAT, Mr Dasgupta said, adding that if required the Union finance minister would himself convince people about the benefits of VAT. I am optimistic that we would be able to convince states, he said.
Speaking to FE, Bihar finance minister Abdul Bari Siddiqui said, VAT was postponed earlier because of political reasons. However, there is no reason why its implementation should not be a success. Traders would not be affected adversely because of VAT.