Indian States Finally Secure Agreement On Implementation Of VAT

by Lorys Charalambous, Tax-News.com, Cyprus

22 June 2004

After numerous false starts and missed deadlines, India’s state finance ministers finally agreed last week to implement VAT (value added tax) from next year.

“We are very happy to announce that a broad consensus among states was arrived at the meeting to introduce VAT on April 1, 2005,” announced Mr Ashim Dasgupta, head of a panel overseeing the implementation of VAT.

The tax is to be levied at a standard rate of 12.5%, although states have been granted a certain amount of flexibility with respect to certain economically sensitive goods and commodities.

The introduction of the tax had been postponed five times due to a combination of foot-dragging states who were ill equipped and reluctant to bring in the measure, and fierce opposition from traders, many of whom staged a series of ‘strikes’ in protest.

However, the new left-leaning government which took office last month has made the implementation of VAT one of its priorities as the country seeks to expand its tax base and close a widening fiscal deficit estimated at 10% of gross domestic product.

Nonetheless, not all states appear to be happy with the broad agreement, including Uttar Pradesh and Delhi, whose conditional support relies on neighbouring states falling into line with the plan.

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