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The imposition of Value Added Tax (VAT) has raised concern amongst the traders, as most of them believe that VAT implementation would increase the already complicated taxation procedure in India. But contrary to the belief, experts feel that VAT implementation would ease out the complicacies in the tax structure in India and also increase the total tax revenues for the central government.
The VAT implemented right now in India is in its most basic form and would be calculated on the gross income--difference between the total value of your purchase invoices and sales invoices. In this scheme of taxation, it would not consider the operational expenses incurred like manpower, logistics, inventory etc. In short, VAT will co-exist with all the other indirect taxes, the transition could result in an increase in the end-user prices of products. However, this increase would be marginal and not exponential as earlier thought.
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Its essence is that it is charged at all stages of production, but with the provision of some mechanism enabling firms to offset the tax they have paid on their own purchases of goods and services against the tax they charge on their sales of goods and services.
Why VAT needs to be implemented is a question in the minds of millions of traders. VAT helps create an atmosphere conducive to economic activity in the country where it is introduced. It expands the tax net and also increases revenue collection for the government. The countries that have implemented VAT have experienced a substantial increase in tax revenue.
In India, however, with so many tax structures (local levies, inter-state taxes, regional taxes), implementing VAT would not be easy. Talks of migrating to VAT have been going on for the last two years and in 2001 and 2002 the country came very close to implementing it, but was deferred due to various reasons.
In fact, few states are already creating hue and cry about revenue losses and trade deficits. Some states think that with increased rate of tax due to VAT might drive away the investments by various companies to open up the offices. A survey suggests that most of the states are not even technically ready for VAT level of implementation as they do not have the requisite educational levels or an infrastructure that is required to sustain this regime.
Though, some states are set to skew or restructure the tax directorates. The state of Maharashtra has promised to abolish turnover tax of one percent levied on the turnover of companies operating in the state. The West Bengal government has decided to thoroughly restructure the sales tax directorates to support the VAT infrastructure.
Even the recent Kelkar Committee report on indirect taxation has recommended moving towards pure VAT at the earliest.
The tax liability would be very different in case of VAT. Every seller will have to show his purchase and sales invoices. Unlike Sales Tax where every taxpayer had to personally visit the sales tax office every month or quarter to get duly tax-assessed, under VAT, the businesses will assess the liabilities on their own, and the respective state government will do random tax assessments.
For companies above the turnover of Rs 40 lakh, a financial audit by a chartered accountant will become mandatory. With the introduction of VAT, every business will be given a taxpayer's identification number (TIN), which will be unique across the country to facilitate inter-state transfer of data easier just like a PAN number.
It is not that only VAT is facing the friction, when services began to be taxed, there were protests but now it seems to be an integral part, in fact its three percent raise did not raise too many eyebrows. Same was the case with MODVAT. Experts feel that when VAT comes, it might be difficult for all elements from administration to businesses to adapt to the new system. It is a simple rule of adapting to the changing market dynamics.
Government bodies are gearing up to implement VAT, right from educating their employees to setting up pristine infrastructure and implementing software for VAT.
VAT might just be the first step towards making tax structure conducive to economic growth.
Channel reactions
JP Modi, Director, Modi Peripherals: VAT will become a liability for us. Now for every transaction, we will have to maintain accountability. For every profit that we make, we will have to shell out something. Though it has been successful in the European countries but as far as India is concerned it won't be much of a success. It will be successful only in small countries.
Not only this, it also may lead to harassment of the business community.
Puneet Singhal, Director, Pioneer Enterprises: For the traders community VAT can become a very problematic system of tax, as far as Delhi is concerned. It will destroy the distributive nature of the state. Why would people come to Delhi to buy things.
It can be a success, when it comes to selling outside Delhi. But for the traders based in Delhi, it will be hard on them. Apart from only in central sale can it be useful and not in the case of local sale.
T Ahluwalia, Director, Astrix Media: As an importer I would say that VAT is a good move but as a trader it is not. For traders it might not be good because they have to purchase from multiple sources. But yes, I'm looking forward to it as we have done our billings in a correct way and people who are making a hullabaloo about the whole thing are those who are into manipulating trade and do not have proper billing. Neither would it harm the distributive nature of Delhi.
Rajesh Agarwal, Director, Micro Max Technologies: I don't think that the implementation of VAT would make much of a difference. And people who think that it will harm the distributive nature of the city are absolutely wrong. It is only a matter of time and once the flow is there, all the apprehensions would disappear.
Alok Gupta, Director, Softmart Solutions: VAT as a concept is great and a progressive step towards the growth of the country. Now there will be uniformity of tax all over India and people who used to evade taxes will now no longer be able to do so. In fact, people who belong to this category do all the hue and cry made about VAT. Now they too will have to register themselves and pay the tax. People who are crying hoarse over the fact that Delhi will lose its distributive character, are the unscrupulous people, who haven't done there billings correctly.
Vikram Gupta, Director, Leading Edge: VAT is the international taxation platform and if it is implemented in India it might cause initial tribulations, as not many people know about it. But, over the years benefits would be visible. The biggest problem as of now is the lack of education about VAT. It has been two years since we first spoke about VAT. Government should have by now educated all the people getting effected by VAT. If the implementation is well educated and transparent, VAT might not generate fear amongst people.