International Tax Conference on Cross Border Transactions
November 17-18, 2005, New Delhi

Address by Mr Pradeep Dinodia, Chairman, Taxation Committee, FICCI

• Good Morning Ladies and Gentlemen. We are privileged to have Dr Parthasarthi Shome, Advisor to the Finance Minister as Chief Guest for this Business Session. All of you would agree with me that we could not have thought of a better luminary than Dr Shome whose deep expertise on the subject will enable us to analyze things in the right perspective.
  
  
• In this business session, we will share our experience about its implementation, which has been in existence for over seven months now - our concerns thereto and suggestions to remove its bottlenecks and streamline it's functioning.
  
  
• Over the years, Sales Tax regime had been causing great obstacles in the free movement of goods and services amongst States and FICCI had, therefore, all through been in favour of VAT which we thought would considerably help in integrating domestic trade in a single market and avoid unhealthy competition in the States. We are happy that Value Added Tax has been put in place in 22 States and most of the Union Territories.
  
  
• It is heartening that the initial apprehensions and reservations of States about adverse impact on their revenue after VAT proved unfounded. Instead, the states are now witnessing revenue buoyancy and greater tax compliance. According to the data available with us, VAT collections have gone up anywhere between 3 percent to 30 percent in different States, the average being around 15 percent, than what was under the sales tax system.
  
  
• We have designed this Session to enable the participants to deliberate upon certain key issues pertaining to VAT : (i) The extent of adverse impact and confusion caused by the lack of uniformity and harmony in rates, rules and regulations; (ii) Whether stock transfers in VAT regime more beneficial than inter-state sales; (iii) Whether continuation of CST a matter of concern; (iv) Whether the movement of goods amongst States affected; (v) What is the impact of prices on commodities; and (vi) What are administrative hassles, etc?
  
  
• I take this opportunity to raise a few points for the consideration of Dr Shome :

One, FICCI has recently conducted a survey titled "Switching over to Value Added Tax Regime". The respondents have indicated some specific operational and procedural hurdles they are facing in the VAT regime. States have not yet adopted common Procedures and Rules, which make it extremely difficult for companies having a wide sub national presence to comply with the Rules and Regulations.

Two, CST should be abolished to make India one common market. We are happy to note that Government has announced that VAT would be reduced from 4% to 2% in the forthcoming year. Alternatively, it should be VATable, otherwise, it would be an aberration in the VAT chain and a deterrent for free inter-state trade and commerce.

Three, we believe the price reduction model, or the remission model could serve the purpose for all stakeholders for the purpose of sales tax incentives granted in various States. Under both these models, the twin objectives of moving to an improved tax structure as well as fulfilling past promises of the States would be met.

Four, there is still a lot of confusion prevailing in respect of commodity classification. Similarly, confusion persists in respect of set off on capital goods and business assets. The disallowance of such set off will take away the basic principles of VAT.

Five, Unless the mindset is changed towards "trust, transparency, this reform can never become popular. It is important for all tax departments to clarify and more so, demonstrate that VAT does not involve greater interference of taxpayers with tax officials and a critical element of reform is moving over to information based system of administration in which self assessment plays a critical role.

Six, the Empowered Committee should spearhead and ensure extensive awareness sessions to remove doubts / issues of all constituents in industry and trade to ensure that the transition to VAT regime is smooth.

Seven, it is important that all other levies in any form be octroi, entry tax, mandi tax are done away with.

Eight, we would also like you to consider moving towards a national VAT, for which a Road Map be laid down with total incidence of 20 per cent (CENVAT 12% and State VAT 8%) to provide us the competitive edge in the global matrix.

• Friends, these are some of my thoughts and I am sure that the galaxy of participants present here would have many more things to suggest to our Chief Guest to improve upon the VAT system to take the same forward to the logical conclusion.

Thank you.