The proposed implementation of the value-added tax from April 1, 2005, received a fillip when Finance Minister P Chidambaram reiterated that it would be introduced as planned.
"The world over, VAT reduces the consumer's burden. Prices will decline and not rise, leading to increased demand and, therefore, a rise in production. It is a production-enhancement system," Chidambaram said, while addressing a seminar on VAT here today.
He also said he would visit towns and districts throughout the country to mobilise opinion and support for VAT before its introduction.
About 130 countries, including Brazil, China and Sri Lanka, have adopted VAT.
"All states need to computerise their billing systems fast. The central government will pick up the tab for the Northeast states. We are investing Rs 30 crore on setting up a Tax Information Network so that all sales are captured," added Chidambaram.
He said Haryana, which had VAT in force for over a year now, had realised higher revenues from tax collection as compared with the previous central sales tax (CST).
Comparing the two, he said VAT was a destination-based tax and not a origin-based tax like CST.
"The ultimate consumer pays tax on parts of the product and the whole product itself, unlike VAT where he pays tax on the whole product. It is erroneous to assume that CST is a single-point tax, it is a multi-point tax which leads to tax evasion," Chidambaram said.
The finance minister confirmed that CST was being gradually phased out and any revenue lost by the states was being compensated by the Centre.
The compensation for financial year 2005-06 will be 100 per cent, 75 per cent for 2006-07 and 50 per cent in 2007-08.
The Empowered Committee constituting the state finance ministers are scheduled to meet in the next six to seven months to decide on the phasing out of CST in the next two to three years.
