New Delhi, March 24
Finance Minister P. Chidambaram today said 21 states were ready to migrate to the proposed Value Added Taxation (Vat) system from the scheduled date of April and urged the remaining states to implement the new regime to make use of the “historic opportunity”.

“According to the Empowered Committee Chairman (West Bengal Finance Minister Asim Dasgupta), 21 states have agreed to implement Vat from April 1 and others have to follow…It is a historic opportunity for states to add a new dimension to Centre-state relationship where an Empowered Committee is really setting the agenda,” Mr Chidambaram said that during a meeting with the Empowered Committee.

Sources said Mr Dasgupta met BJP President L.K. Advani in the wake of reservations expressed by the BJP ruled states about switching over to the new regime. Sources said Mr Advani told Mr Dasgupta that the BJP ruled states were ready with the requisite Vat legislation and sufficiently prepared to move over to the Vat regime. However, Mr Advani expressed concern that since some of these states — Rajasthan and Madhya Pradesh — were contiguous with Uttar Pradesh, it was important that UP also implements Vat. to ensure that no state gains unfair advantage by distancing itself from the new taxation system.

Sources said the Empowered Committee was willing to review the Vat rates of a number of items in June, three months after the new system comes into force. The sources said that the Vat panel has agreed to increase the exemption limit of traders from Rs 5 lakhs to Rs 10 lakhs.

A series of meetings are also scheduled over the next few days with officials of UP, Tamil Nadu and BJP ruled states to thrash out a commonly acceptable formula which enable the new regime to come into force from the scheduled date.

Sources also indicated that the Finance Ministry has agreed to phase out the Central Sales Tax (CST) within the next three years. This has been a major area of concern of most of states.

“I am happy that state finance ministers have promptly committed themselves to implement Vat. I urge the state finance ministers not to miss this opportunity but to continue with the roadmap drawn,” Mr Chidamabaram said.

Under the proposed Vat system covering about 550 goods, there would be only two basic Vat rates of 4 per cent and 12.5 per cent, plus a specific category of tax-exempted goods and a special Vat rate of 1 per cent only for gold and silver ornaments. This would do away with the multiplicity of rates in the existing structure.

There would be also a list of 46 commodities under the exempted category comprising natural and unprocessed products in unorganised sector, items, which were legally barred from taxation, and items that had social implications.

However, the proposed system has come across strong opposition, particularly from the trading community. The Confederation of All-India Traders (CAIT), which is spearheading the movement against the introduction of a countrywide Vat, pointed out that the goods are not clearly defined in rate schedule.