Posted by: Prem Piyush | March 22, 2005

VAT – Value Added Tax


The government is set to decide the unification of multiple tax structure existing in India. The product or services which include multiple point tax payment are quiet variable. There were different prices of the same product across the state borders. Same item have to pay the dual tax central tax as well as state tax. The proposed VAT is intended to replace the differentiating state taxes but it’s not clear that whether the central tax shall too be replaced by the same.

Now there are some points to ponder over. The government says that VAT shall reduce the prices in general. But reduction in prices is directly proportional to the comparatively lesser payment by the customer. Now who shall bear the burden of price difference due to lesser payment by the customers? Government can’t make loss due to newer tax regime. The only profit will be constant prices and lesser tax haggles.

The VAT is intended to be effective by 1 April 2005, but now not many governments are ready to implement it. The economic and business pressure groups are lobbying around to resist it. According to them the business will be hard hit. Many export units argue that they are not prepared for it; hence the government should defer it. Many BJP ruled states are resisting VAT in its present structure.

Tax Reforms Committee headed by Dr.Raja Chelliah as recommended the move towards VAT for commodities and services states for lessening the cascading effect of multiple taxes on the ultimate customers shall be beneficial, only if there is common consensus throughout all states about the implementation of VAT on 1st April, 2005.

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