Take to VAT, Andersen official tells corporates

Bangalore, Oct 7: He isn't your typical Englishman with the stiff upper lip. Keith Miers, managing partner for Arthur Andersen's global in...

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Bangalore, Oct 7: He isn’t your typical Englishman with the stiff upper lip. Keith Miers, managing partner for Arthur Andersen’s global indirect tax practice, admits unabashedly to being moved by Hindi tearjerkers and swooning to Asha Bhonsale numbers.

But the tune he is playing here in India is aimed at drumming into the heads of business leaders the benefits of a single value-added tax (VAT).

Miers, in India on a three-day visit, told The Indian Express that the indirect tax structure with a variety of taxes at different levels was “too complex with the same goods bearing multiple taxes in different forms, multiple tax rates across states, taxes on inputs and capital goods all causing a cascading effect of taxes with a high tax incidence on a narrow tax base and entailing high costs of compliance and administration as also tax evasion.”

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He said the introduction of VAT (if and when) would widen the tax base, add buoyancy to the revenue collections and improve compliance if one were to factor in possibly lower rates covering a wider spectrum of goods and services.

VAT is a single multi-point tax on goods and services that is levied across various stages of production and transit with credit being given for the tax paid at each stage on the value added.

Citing the example of Canada which introduced VAT in July this year, he said the central VAT had been amalgamated with the sales tax levied by different states and “the cherry on top is that all the revenue collected through VAT goes back to the respective states.”

However, despite the fact that 110 countries including the European Union member states, most of Asia-Pacific, some African nations and Canada and Australia having adopted VAT, Miers said the USA does not seem anywhere close to opting for VAT.

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For businesses in India, he said it would mean the creation of a level playing field and a fairer system “since everyone involved is paying a part of the tax at any given stage.” However, businesses here seemed concerned about the levy of an additional tax burden without any reduction in the existing ones, Miers said.

In terms of exports, he said, “A more pure VAT would make Indian goods more price competitive with all the VAT up to the export point being credited.” However, despite the introduction of Central VAT or CenVAT, India seems to be quite some time away from “pure vatting” the indirect tax structure (see chart for proposed schedule).

According to a note prepared by Andersen, VAT will not apply to interstate sale of goods. Interstate sales will continue to be taxed on the basis of CST in the originating states. There is a proposal to reduce CST in two phases to 3 per cent by 2001 and 1 per cent by 2003. However, it is yet to be finalized since the states are demanding compensation for the revenue loss. A decision on CST is expected on October 15, 2000.

VAT will not apply to services – these will continue to be separately taxed by the central government. The Tax Reforms Committee (1992) has recommended adopting VAT for services. An expert group on service tax formed to study its broad-basing is expected to present its interim findings on this issue on October 31, 2000, the note said.

PROPOSED TIME-FRAMES

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* December 2000 — design of a model VAT system (later to be adopted by the states with allowances for variations)
* February 2001 — model VAT law (later to be adopted by the states with allowances for variations)
* April 2001 — model VAT procedural manuals
* June 2001 — common computerization program and commence ment of training exercise
* September 2001 — media campaign and registration of dealers.
* December 2001 — forms and documents
* February 2002 — finalization of transitional issues and fixation of rates