Model Vat Legislation To Be Drafted Soon

The National Institute of Public Finance and Policy (NIPFP) will soon be entrusted with the job of preparing the model legislation prior to the introduction of value-added tax (VAT) throughout the country.

The finance ministry is in the process of finalising the broad guidelines for the model legislation. After formal approval from finance minister P Chidambaram, which is expected shortly, NIPFP will be handed over the task of drafting the legislation.

The VAT legislation will be a Central legislation which will replace the Sales Tax Act of all the states. This is imperative in order to harmonise the revenue collection system of all the states, explained officials. Moreover, free movement of goods among the states is a must to ensure the smooth functioning of the proposed system.

 

State governments will have to agree to the Central VAT legislation as they have little option. Since some states have made no headway, the states which have already introduced VAT will have to show the way to others, said an official.

With a view to ensuring a smooth run-up to April 1, 1998, the date on which the nation is expected to switch over to VAT, the state finance ministers are scheduled to meet in the capital after the budget to assess the progress made so far. The meeting is expected to take a decision on the report of an expert committee, which has recommended that the Central sales tax be progressively reduced from the present rate of four per cent to one per cent.

Ultimately, we will have to do away with Central sales tax when the pure form of VAT becomes operational, the official said. The motive of the government in switching over to VAT is to ensure that the country moves from the present system of single-point taxation to multi-point taxation, he added.

The committee has also recommended that services be taxed by the state governments.