Haryana first state to switch to VAT

Haryana became the first state on Tuesday to switch to the value-added tax as per the original schedule of April 1 even as the Centre acknowledged that VAT had been deferred.

While Haryana is yet to receive the President's nod for its VAT legislation, the state decided to introduce the tax. VAT would, however, not be harsh on trade because the state law did not provide for prosecution of traders who failed to comply with the new tax regime, said a Haryana government official.

The official said the state had sought the opinion of its law wing, which said presidential assent was not necessary for switching to VAT.

SK Kabra, head of finance in Honda Motorcycles and Scooters India Ltd, said there was immense confusion today among corporates with manufacturing operations in Haryana over VAT.  "We were taken by surprise because we came to know from field employees that the tax department had imposed VAT.

Though the tax rates have not changed, there is confusion over the fate of the exemptions extended to various companies," he said.

Hero Honda Motors Ltd vice-president (finance) Ravi Sood said there might be a price increase at the retail level because the 12 per cent tax would apply on the last selling price. "The VAT regime was kind of already implemented in Haryana. There is expected to be some confusion over maintenance of records," he said.

In another development, the Centre passed responsibility of setting a new date for moving to VAT to the empowered committee of state finance ministers.

In a statement, it said  the committee should reconsider the matter and unanimously set a date. In an apparent reference to the move by Haryana to switch to the new tax regime, it said introduction of VAT piecemeal was not workable.

Acknowledging that the obstruction to VAT was largely due to the lack of information on the tax among businessmen, the empowered committee at its next meeting is expected to ask all the states to launch a massive advertisement campaign to educate traders.

Finance ministry officials said the campaign would be similar to the one for the tax amnesty scheme in 1997, for which the Centre had spent upwards of Rs 30 crore (Rs 300 million).

The officials said the VAT campaign would take into account the peculiarities of each state's sales tax structure. The finance ministry is expected to compensate the states for the cost of the campaign.