FM calls for tax reforms, change in stamp Act
Tribune News Service

NEW DELHI, Sept 14 — The Union Finance Minister, Mr Yashwant Sinha, today urged the states to speed up tax reforms and take steps to create necessary conditions for introduction of value added tax (VAT) by the turn of the century.

Mr Sinha told a conference of chief ministers on tax reforms here that there was a need to reform the central sales tax and the rate of tax applicable to inter-state sales should be brought down step-wise from 4 per cent to between 3 per cent and 2 per cent.

The need to amend the Indian Stamp Act, 1899, and the corresponding state-level Acts and a strict check on the functioning of the non-banking financial companies (NBFCs) were among the issues raised by the Finance Minister.

The Punjab Finance Minister, Capt Kanwaljit Singh, who substituted for the State Chief Minister, Mr Parkash Singh Badal, who is away to Chennai, said his state was committed to the introduction of VAT from a single cut-off date and was in agreement with the need to reduce the sales tax slabs.

Capt Kanwaljit Singh said that on the proposal to phase out CST, the Punjab Government would require to be totally compensated on account of a revenue loss of approximately Rs 300 crore per annum.

The Haryana Chief Minister, Mr Bansi Lal, stressed the need for setting up a regulatory authority for NBFCs which would help safeguard the interests of depositors. Mr Bansi Lal said the phasing out of the CST would cause losses to the state and felt that a consignment tax should be imposed in the transitional period. He also suggested that all states, particularly those in the northern region, should agree to floor rates on all major items.

The Himachal Pradesh Chief Minister, Mr Prem Kumar Dhumal, too could not attend the conference and the state was represented by the Public Works Department Minister, Mr Mohinder Singh.

Mr Sinha said that contrary to the decisions taken at the previous conferences of chief ministers in 1995 and 1997, few States had moved towards harmonisation of tax rates. There still existed wide disparity in rates. States were still competing with each other to attract trade and industry, thereby negating the efforts to harmonise the tax structure.

He said such "rate wars" amongst states and fiscal incentives and local considerations would not help in integrating the tax structure of the country.

The harmonisation effort should be followed by developing a design of computerisation of sales tax administration, preparation of a model VAT legislation, return form and other forms needed, together with guidelines for documents to be maintained by VAT tax-payers.

Mr Sinha informed the conference that a model statute on VAT had been prepared by the National Institute of Public Finance and Policy and a working group of state finance ministers and union territories had submitted their recommendations on it.

On the need to amend the Indian Stamp Act and the corresponding state-level laws, Mr Sinha said these papers were becoming increasingly irrelevant for purposes of either generating revenues, or regulating activities. They were also flawed on account of having too many rates of duties and required arduous procedures which led to delays and harassment.

On the issue of NBFCs, Mr Sinha urged the states to get together to search for a worthwhile solution to the problem caused to a large number of depositors by some companies and unincorporated bodies.

Capt Kanwaljit Singh said his government was in a position to take timely steps as regards the draft time table for introduction of VAT by 2000.

On the agreement between state chief ministers to have uniform rate of tax in respect of 15 commodities, Capt Kanwaljit Singh said this was possible if the recommendations were implemented by all states and union territories from one cut-off date.

Mr Bansi Lal suggested that the Central government should set up a group of experts to advice on the management and functioning of the NBFCs and to make recommendations for involving the state governments in supervising them.

Regarding rationalisation of the CST, the Haryana Chief Minister said his government would adopt these reform measures only after provision for consignment was made for the transitional period.

Supporting Mr Yashwant Sinha’s comments on tax wars between the states, Mr Bansi Lal said all states, particularly those in the northern region, should agree to floor rates on all major items. He suggested that Delhi should raise its rates of sales tax on most of its commodities which were below the agreed floor rates.

Regarding stamp duty reform, the Chief Minister said Haryana had already taken steps in improving the procedure and legal provision in the administration of the stamp Act.