'Implement VAT or face mass exodus of companies'

Chennai, Jul 17: The Tamil Nadu Government must adopt innovative approaches for a smooth introduction of Value Added Tax (VAT) in the State or else companies will be forced to move to other states where VAT has been implemented, according to study by Confederation of Indian Industry (CII).

The study on "Imperatives for Implementation of VAT in Tamil Nadu" conducted by the CII and a copy of which was released the media, said the companies with pan national operations were unable to fully utilise the tax set-off facility offered under VAT, since input tax credit was available only to the extent of the sales within the state, from which the inputs are sourced.

The study said implementation of VAT would enable Tamil Nadu to be globally competitive with other competing low cost sources including China.

The study suggested that the Tamil Nadu Government must consider providing a total tax exemption or introduction of lower tax rate of four per cent to certain items to avoid an inflationary impact on the local economy.

It should include traders into the VAT regime in a phased manner to give more time to small traders to improve their book keeping capabilities.

The CII study noted that the loss in revenue, incurred because of tax exemption or lower tax rates will be offset from the revenue gains from better tax compliance and a widened tax net.

On the apprehension about the possible price increase due to VAT, the study said the proposed VAT system for Tamil Nadu would never result in escalation of prices as it proposes to have one per cent, four per cent and 12.5 per cent tax rates, as against the present eight different tax rates of the General Sales Tax Act. The system also proposed to provide total exemption to around 46 commodities of local importance including rice. Petrol, Diesel, LDO, Kerosene outside the Public Distribution System would be totally outside the scope of VAT.

The CII study pointed out that even in the proposed VAT system for Tamil Nadu, the registration turnover limit would be Rs five lakh, instead of Rs three lakh under the Tamil Nadu General Sales Tax Act.

In the states where the VAT was implemented showed substantial increase in the tax revenues of the government. Haryana was the first State to implement VAT and its total revenue increased by 30 per cent, the study added.

UNI