States Should Adopt Model Vat Law: Norre

Various states and industries in the country are heading for chaos unless proper mechanisms are put in place before the implementation of the value-added tax (VAT) from April 2002, which is hardly five months down the line, according to Phillipe Norre, director, Deloitte Haskins Tohmatsu.

"There is not a single mother law on VAT to derive and develop state-specific legislations, and the industries have just started to think about the repercussions," the 33-year-old Norre, who specialises in value-added tax, told Business Standard.

Different states are arriving at their own interpretations of the legislation to be drafted (which looks like it would be difficult to achieve the April 2002 deadline) in next few months.

"While one state is drawing the VAT legislation based on Belgium model, another follows the UK model," Norre said.

This is expected to create problems of harmonisation within the country, as a manufacturer and his distributors will not have a common understanding on application of VAT especially when the business is inter-state.

He suggested that all states should adopt a model VAT law within broad parameters akin to European Union. EU has issued broad parameters with regard to VAT application to various member countries.

Though the various chambers of industry and commerce have been interacting with the state governments on the issue, industries independently have hardly given any thoughts to the pending switch-over from sales tax regime to value-added tax regime.

"It is desirable that there should be hectic interaction between the industry and the authorities, like what Australia did before implementing VAT (goods & service tax) from July 2000," Norre said.

According to Sameer Gandhi, partner, Deloitte, Haskins & Sells, "Deloitte had prepared a tutorial for Australian tax authorities for the related issues, which were highly successful in creating a conducive environment between the tax authorities and the industry and trade."

"It is high time that the industries for themselves start taking the change over seriously, as once VAT is in place and if manufacturing sectors are not ready with their invoicing and accounting methods to that tune, there will be a major problems. Their cash flows and working capital requirements will get adversely impacted," Norre warned.

The companies will have to restructure their pricing policies, marketing set-ups and transportation requirements, he said. He called for immediate steps with regard to modifications in the accounting and invoicing software adopted by the manufacturing companies.

"There is also a need for information exchange system between the various layers of tax-authorities, especially the field officers, who currently are working in isolation," Norre said.