No impact of VAT on prices: PwC

Implementation of value added tax across 22 states since 2005 has not resulted in an increase in prices of goods, according to a survey by PricewaterhouseCoopers.

A majority of respondents, however, said states had not been successful in bringing about uniformity in the VAT structure.

One of the key apprehensions raised before the introduction of a VAT regime was the likely increase in prices on its account.

As many as 57 per cent of the respondents surveyed said there was no change in prices due to the levy. At the same time, 22 per cent said it increased the prices of products, while 20 per cent felt it decreased them.

Auto and auto ancillary along with consumer durable sectors comprised a significant proportion of the respondents who said that VAT did not impact prices.

Respondents from industrial goods and construction sectors said there was a decrease in prices post VAT, while telecom and FMCG were adversely impacted as a result of VAT, reporting an increase in prices.

As per the survey, which covered over a 100 companies, only 18 per cent of the respondents felt that state governments were fully prepared for the switchover to VAT while 76 per cent felt that states had not been successful in bringing about uniformity in the VAT structure, one of the key objectives of its implementation.

"Non uniformity in the VAT rates across the states has adversely impacted companies with all India operations as they have to reckon with varying rates in different states," S Madhavan, head of indirect tax practice of PricewaterhouseCoopers said.

Similarly, 44 per cent of the respondents indicated that they maintained their margins post VAT while 27 per cent indicated a negative impact. The IT, hardware, telecom and construction sectors reported a nil impact on their margins.

"This would mean that for the telecom sector, for instance, where there has been a price increase as a result of VAT, the impact has been passed on through price increase and margins have consequently been protected," the survey said.

Industrial and pharmaceutical sectors reported a positive impact on their margins while FMCG and retail sectors reported a negative impact due to their inability to pass on the increased tax burden through prices.

Regarding phasing out of Central Sales Tax, the survey said 28 per cent of the companies were of the view that CST should be gradually reduced, while 58 per cent chose to opt for CST rate being equal to the VAT rate coupled with full input credit of CST paid.