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1. VAT in all States
VAT system of taxation required to be implemented simultaneously throughout the country in all States and Union Territories at the same time. This will avoid serious market distortions and enhances industry's competitiveness.
2. Uniform VAT Law and procedure
India has often been described as a country with large market. But unfortunately this large market has been highly fragmented by inter-state barriers. It is further complicated by State specific law on sale of goods. The wide divergence in the structure and practice has hampered free flow of goods and services within the country and effected competitiveness of Indian Industry.
Homogeneity is the essence of VAT and all States should come together to accept a common law under VAT. All forms, returns & declarations should be common to avoid artificial barriers and complexities.
3. State VAT Rate and Classification of goods
Uniform rate structure across the country helps in avoiding diversion of trade from one State to another, checks unhealthy competition and reduces tax evasion. It helps automobile industry to plan and commit long term investments.
Basic rationale needs to be developed for generation of revenue from industrial products. This should be long term and the share of taxation in the total value of the ultimate customer needs to be defined. SIAM recommends such a policy in taxing goods and services under VAT.
Total taxes from both Centre and State as proposed by SIAM not to exceed 25%. Considering Cenvat at 16%, Designated rate should not exceed 9%.
The classification of goods should be aligned to central taxes to reduce litigation. Uniform classification across all States and central taxes would create favourable environment for growth of industry. No separate classification of Capital Goods
4. Multiple levies and Industrial input
One of the stated objectives of VAT is to reduce multiple levies. Number of rates under VAT should be 0%, 4% & RNR in addition to 1% on precious metal and 20% on petroleum products. All other levies like Octroi, Entry Tax should be abolished.
Inputs used in the manufacturing should be taxed at 4% against issue of declaration. There should not be any specific list of industrial input, as it will deprive the benefit to the industry using input other than the one mentioned in the list. Reduced rate on industrial input will avoid refund problem and avoid unnecessary interaction with the Department.
Further when interstate transactions are zero rated, manufacturer selling predominantly in interstate ends up having huge input tax credit without set-off. Automobile manufacturers having one manufacturing facility in the country sells more than 80% of the production outside the Sate and forced to seek refund from the State Government for excess input tax credit. SIAM suggests VAT rate of 4% on all industrial input to mitigate the refund issue.
5. Set-off mechanism
Set-off of tax paid should be allowed for all inputs including raw material, components, consumables, fuel and capital goods. Tax paid on services should be allowed to be set-off. Tax paid on capital goods should be allowed as set-off in full in the same year to avoid confusion and litigation later.
6. Interstate transactions
All interstate transactions should be at zero rate.
Further automobile manufacturers 'Stock Transfer' goods by setting up huge facilities to strengthen distribution net work in order to reach the product to the customer at the earliest and at least cost. This mechanism should not be affected even under VAT.
7. Sales Tax Incentives
Automobile manufacturers have made huge investments, which are in phases in unviable locations. These locational disadvantages are partially offset by fiscal incentives. Any detrimental variations or withdrawal will affect the viability of such investments. This may adversely impact the country's image as an attractive investment destination. It is heartening to note that all States have agreed in principle to honour all existing incentives under VAT
SIAM suggests the following:
| Input Tax Exemption |
. Refund Input Tax separately - adopt Maharashtra model |
| Output Tax Exemption |
· Continue exemption, Option to Defer output tax |
| Output Tax Deferral |
· Continue Deferment, refund input tax separately. |
| Input Tax Exemption & Output Tax Exemption |
· Refund Input Tax separately,Option to Defer output tax |
| Input Tax Exemption & Output Tax Deferral |
· Refund Input Tax separately,Option to Defer output tax |
8. Refunds
Due to various reasons there is no alternative but to seek refund from the Government in case of excess credit. Given the state of finances, refunds will be difficult and uncertain while locking up working capital for industry.
Refunds should be honoured within 15 days from the date of filing returns and credited to the assessee's account.
Alternatively, VAT Entitlement Certificate on the lines of freely tradable DEPB may be considered.
9. Industry Representation
Empowered Committee may consider inducting industry representation in the committee for transparency and smooth introduction of VAT.
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