Chandigarh, November 4
The Punjab Value Added Tax (Second Amendment) Bill, 2013, passed by the Punjab Vidhan Sabha that paves the way for the state to collect tax in advance from traders and manufacturers, has created a fear psychosis in the mind of businessmen.

Without even knowing whether the goods that they are getting in the state (to be sold as it is, or after processing) will actually find buyers here, the traders will now have to pay the entire tax on its sale in advance. At a time when the industry is passing through a recessionary phase and facing a severe liquidity crunch, most businessmen in Punjab feel it is unfair on part of the government to impose the advance tax.

Though the Bill was passed in the Vidhan Sabha last week, the state excise and taxation officials have already started collecting advance tax on goods being brought in from other states.

In its defence, the state government says the reason for collecting advance tax is not just to plug loopholes in VAT collection. It will also act as a protectionist law for the local industry to ensure that goods brought from outside the state do not bite into their (local industry's) market share.

The government hopes to collect Rs 400 crore as advance tax, and has already committed to the traders and businessmen that the advance tax will be used to create a VAT Refund Fund to expedite the process of VAT refunds due to traders.

But the business community is not happy. RS Sachdeva, co- chairman of the Punjab Committee of PHD Chamber, said the payment of advance tax meant a lot of advance investment. "Without even selling or processing material we get from outside the state, we are now liable to pay tax in advance.

"The small and medium enterprises will be severely hit as they will have to keep enough credit at disposal to pay taxes in advance, the moment the goods reach the entry point in Punjab. In the normal process, one was liable to pay tax only after the goods were processed and sold," he said.

Supporting his views, DL Sharma, chairman of the Punjab State Council of Confederation of Indian Industry (CII), rued that the government had introduced the system only after it failed to nab those who were evading VAT on sale of goods.

"The idea is to collect tax at the stage when it enters the state. But there are too many problems for the honest taxpayer.”

Badish Jindal, president of Federation of Punjab Small Industries Association, said though almost 37 items had been included in the list where advance tax had to be paid, almost all trucks ferrying goods to Punjab were now stopped.