The value-added tax regime, to be introduced from April 1, will allow traders to make a self-assessment of their VAT liability, replacing the need for a compulsory assessment at the end of each year, according to the draft white paper on VAT being finalised by the empowered committee.
"Because of the importance of the concept of self-assessment in VAT, the provision for 'self-assessment' will be stated in the VAT Bills of states," the paper said.
The paper has proposed that the provision for penalty in VAT Bills will not be more stringent than the existing Sales Tax Act, but the new regime will make it mandatory for all dealers with a gross turnover of Rs 500,000 or more to register.
A new dealer will be allowed 30 days from the date of eligibility to get registered.
The VAT, which is the tax to be paid by a registered dealer on the value addition of goods sold by him, will be calculated by deducting the input tax credit from the tax collected by the dealer during the payment period (say, a month).
As per the white paper, input tax credit will be given to both traders and manufacturers for the purchase of inputs and supplies meant for sale within the state or in other states.
Tax paid on inputs procured from other states through inter-state sale and stock transfer will not be eligible for credit.
However, in order to ensure a smooth transition to the new regime, the paper has proposed that all tax paid-goods purchased on or after April 1, 2004, and still in stock on April 1, 2005, will be eligible for input tax credit subject to the submission of requisite documents.
There will also be a negative list for capital goods that will not be eligible for input tax credit.
Small dealers, with gross annual turnover not exceeding Rs 500,000, will not be liable to VAT. But dealers with an annual gross turnover not exceeding Rs 40 lakh (Rs 4 million), who are otherwise liable to pay VAT, will have the option for a composition scheme at a small percentage of their gross turnover.
"States will have the flexibility in fixing the threshold limit within Rs 500,000. They may have some flexibility in fixing the upper threshold limit for turnover," the paper said.
An 11-digit identification number for tax payers will be introduced throughout the country, under which the first two characters will represent the state code as used by the home affairs ministry.
Liquor, lottery tickets, petrol, diesel, aviation turbine fuel and other motor spirits will be outside VAT since their prices are not fully market determined. These items will continue to be taxed under the Sale Tax Act.