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Making public the provisions of the Act is expected to facilitate the smooth transition from the general sales tax system to VAT.

CHENNAI, March 14

IN a move that signals its intention to switch over to Value-Added Tax from April, the Tamil Nadu Government has made public the draft of the Tamil Nadu Value Added Sales Tax Bill, 2003.

Available on the State Government's Web site is the draft bill, which the trade and industry has been expecting to see for quite some time. During the extended deliberations and the numerous workshops and symposiums over the last two years, the State Government not making available a draft of the VAT bill for debate was the pet peeve of manufacturers and traders.

Making public the provisions of the Act is expected to facilitate the smooth transition from the general sales tax system to VAT. The new tax regime will see the State move away from the single point tax to a multipoint system involving taxation at every point of sale.

Effectively, VAT is expected to significantly bring down the plethora of legislations governing sales tax within each State.

The draft says that the Tamil Nadu General Sales Tax Act, 1959 (Tamil Nadu Act 1 of 1959) will be repealed once VAT comes into effect. According to industry this also hopefully portends the abolition of the other taxes that are not in conformity with the VAT provisions like the turnover tax and the surcharge. Though the draft does not provide details of the tax rates on specific items, these are bound to be in line with the consensus reached earlier by the States.

The tax rates will be common with that prevailing in other States with items of inputs and raw materials attracting four per cent and the rest 12.5 per cent, the revenue neutral rate. The exempted list will include about 30 - 35 items that have been agreed up on.

The petroleum products and IMFL will attract a minimum floor rate of 20 per cent, and bullion and precious stones 1 per cent, both categories of which will be outside the purview of VAT. Exports will be zero-rated while the tax on inputs will get tax credit.

The manufacturers will be eligible for input rebates on tax paid on raw materials and the tax set off benefit accorded for tax collected or paid within the State at every point of sale.

In the initial stages VAT is expected to result in a drop in State Government's revenue. However, with the Central Government committing to compensate the States' losses in the initial three years and its assurance to compensate fully the Central Sales Tax (CST) component initially, the stage is well set for introduction of VAT.

The Centre has commenced phasing out of the CST. With the Budget session around the corner the draft will now have to be approved by the Centre before being introduced in the Assembly. It is learnt that the State has shown a nearly 15 per cent growth in sales tax revenues during 2002-03 over the previous year. As of February-end its revenue was about Rs 9,250 crore as compared to Rs 8,034 crore earlier.

The main growth has been contributed through entry tax, which is expected to net about Rs 500 crore during the year, and resale tax and surcharge which account for a revenue of Rs 20 crore per month each.

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