Uttar Pradesh - IIA demands modification in VAT

The VAT rate schedule as declared by the government has too many complications, said the Indian Industries Association (IIA) demanding modifications in VAT system.

In a press release, on Saturday, IIA mentioned that repercussions of the present rate schedule would be borne not only by the industrialists and consumers, but also by the government. Petrol and diesel have been made taxable at 32.5 percent and natural gas and furnace oil at 20 percent.

Industries cannot survive without these and since neighbouring states are offering concessional rates on this, the import of these items will be a natural choice. This will entail only 3 percent of central tax and transportation charges. The negative effect of this will be felt by both the entrepreneurs and state government as government will lose the tax it would have otherwise received.

Agra is one place where the industries will reel under the impact of the present VAT rates as the availability of natural gas would be a dream. It is to be noted that Supreme Court in its order has made the use of natural gas mandatory for the industries prohibiting the use of coal and coke.

Honey, the popular industry in rural areas, which was so far tax free, has been made taxable at 4 percent, similar is the case with buns and rusks which are not under tax net.

Cotton yarn in cone and hank which are the same commodities except for their packing styles were formerly tax free, now cotton yarn in hank will be non-taxable while cotton yarns in cone is taxable at 4 percent. As cotton is not produced in UP, all the spinning mills would close down.

However, tax rate on country liquor and spirituous liquor as proposed is less than in neighbouring states. Development tax at 1 percent was initiated on May 1, 2005 for 5 years, it would be effective till 2010 and despite repeated assurances by the government, it has not been cancelled as yet. It would be all the more complicated to cancel it once the VAT becomes effective.

As per the white paper prepared by the empowered committee on VAT, no other tax should be levied after the implementation of VAT, but entry tax is still effective and this despite being declared unconstitutional by Supreme Court.

Source : Times of India - India, dated 23/12/2007