TN, Pondicherry may introduce VAT soon: Dr Shome

Mumbai, May 20 : A few states, which did not replace sales tax with Value Added Tax (VAT), are expected to change their stance and introduce VAT soon, said Dr Parthasarathi Shome, Advisor to the Union Finance Minister, here today.

Addressing a seminar on ''Vision 2010-Convergence of VAT and Service Tax and Issues in Service Taxation'', organised jointly by the Indian Merchants' Chamber (IMC) and the Forum of Free Enterprise, Dr Shome said that adoption of VAT by all states would be complete soon ''as Tamil Nadu and Pondicherry's newly-elected governments had declared their intention to fall in line with the rest of the states soon.'' ''Even the Uttar Pradesh government has recently said it is not opposed to VAT but that it would adopt it after consultation with the trading community in the State,'' he pointed out.

States like Maharashtra and Karnataka, where the manufacturing activities were strong, were expected to suffer some losses on adoption of VAT, he said, adding that these states would, therefore, be compensated by the Centre.

''A majority of other states, which are mainly engaged in distribution activities, have gained in terms of higher revenues after the switchover to VAT and hence, won't be required to be compensated,'' Dr Shome said.

Terming the experience gained in the past one year since VAT came into force as ''very positive'', Dr Shome said that the inter-state nature of operation and structure of Central Sales Tax (CST) were somewhat complex and ''the issues involved in merging it with the proposed Goods and Services Tax (GST) were being studied.'' On the issue of switchover to GST, Dr Shome said that it required a Constitutional amendment for enabling the Central Government to levy it and also collect it along with the states.

Inviting all chambers of commerce and industry to submit detailed recommendations on GST, Dr Shome said that with newer services, especially IT-based services, being brought into the ambit of taxation, the problem of defining them and computing and determining their foreign origin, etc, had become very complex.

Mr Nayan Patel, President, IMC, highlighted the fact that the Union Budget was categorical that GST would be introduced before 2010.

''The transition from the current plethora of duties to a GST is vital to bring about a simple, integrated and harmonised consumption-based tax system. To achieve this, central excise duty must be converted into a full-fledged manufacturing stage VAT on goods and services and the states' sales tax systems must be transformed into a retail stage destination-based VAT, before the two are integrated into GST,'' he said.

UNI