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| Was VAT worth the trouble? Yes, says
majority of the business commmunity |
Last
year, the governments of 22 states and four Union Territories
took what was, arguably, their wisest economic decision on a day
universally known as All Fool's Day-they replaced the state-level
sales tax with value-added tax (vat). This year, five more states
jumped onto the bandwagon. This means only two states, Tamil Nadu
and Uttar Pradesh, are still holding out; the former is expected
to fall in line after the completion of the Assembly elections
next month.
What has the experience been like? According
to a PricewaterhouseCoopers (PWC) survey of over 100 companies
having pan-Indian operations, the corporate sector is largely
happy with the changeover. "It is heartening to note that
84 per cent of the respondents believe that the overall experience
of transitioning from the sales tax regime to vat was a smooth
one and they believe it was worth the trouble," says S. Madhavan,
Executive Director and Leader (Indirect Tax Practice), PWC. He
adds, however, that "only 18 per cent of the respondents
felt that the state government were fully prepared for the transition,
compared to 74 per cent of the respondents who felt the states
were only partially prepared".
That's a massive, albeit qualified, vote
of no confidence in the quality of tax administration at the state
level. It also means vat is a good idea that may get undone by
bureaucratic sloth.
| FIVE MAJOR PROBLEMS |
»
Continuation of CST and ineligibility of input
tax credit on inter-state procurements
» Partial
implementation of VAT
» Differences
in VAT rates across states pose significant challenges for
product pricing and maintenance of ERP data base
» Variances
in treatment of input tax credit on capital goods
»
Apportionment of input
tax credit towards taxable and exempt supplies |
| FIVE IMPROVEMENTS |
»
Introduction of uniform product classifications
»
Extension of input tax credits to CST paid
on procurement
»
Adoption of a practical approach to VAT
audits of assessees
»
Introduction of single window assessment
processes for all state taxes
»
Proper training to VAT administrators |
The survey shows that contrary to widespread
belief, vat does not result in any additional one-time or recurring
compliance costs for assessees. This had been a major sticking
point in the run-up to its introduction; trade bodies had opposed
it on the ground that it would increase costs. However, it does
have a more elaborate compliance system, mainly because of the
need to monitor the award of tax credits. So, state governments
will be well advised to streamline this to make it more assessee-friendly.
The old sales tax regime had spawned a system
of Inspector Raj and bribery. Is the new vat regime any better?
The respondents felt that one year was too short a time to comment
on this. However, since vat has a built-in self-policing (its
full benefits will be available only to those who honestly declare
all their transactions), it is expected to bring down the incidence
of harassment and corruption that trade and industry has to encounter.
Still, it will take at least another year to actually collect
evidence to corroborate this thesis.
In balance, it will be fair to say that prima
facie, vat seems to have scored some early points with assessees.
Was VAT worth the trouble? Yes, says a majority
of the business community
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