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2 years of VAT: Uses, misuses and unfulfilled promises
April, 03rd 2007
Two years after the implementation of VAT in Andhra Pradesh, the Government is quite happy with the revenues showing significant growth but traders and experts complain that there is a lot to be done to meet the promises made.

The Commercial Taxes Department is aiming to close 2006-07 with Rs 16,300 crore.

The Chief Minister, Dr Y.S. Rajasekhara Reddy, has set a target of Rs 20,850 crore for the current fiscal.

The figures look quite encouraging and dispel the initial doubts and concerns raised over the new tax regime. But they do not show the complete picture.


Traders say that nothing has changed significantly in the post-VAT scenario from the Department side. Experts say that the same system is not able to take the weight of VAT and is showing signs of crumbling.

"They promised simplification of procedures and change of administration to suite the new tax regime. But nothing has changed," said Mr Nitin K. Parekh, a tax expert and former head of the Federation of Andhra Pradesh Chambers of Commerce and Industry (FAPCCI) panel on taxes.

"They also promised the trade that they would minimise documentation. It didn't happen either."

Mr Konathala Ramakrishna, Minister for Commercial Taxes, said that the new regime had resulted in increase of transparency and compliance levels.

"Harassment of dealers too has declined. Our revenues are surpassing the targets."

However, the Minister said that there was a need to fine-tune the system and strengthen the audit wing, which has been a handicap. "This is a better structure than the APGST. The rates of taxes have come down."

On the argument that the administration mechanism was not able to take the weight of VAT and that the target system was still continuing, Mr Ramakrishna said that unlike in the GST system, the Department was now a facilitator. "The targets are in tune with the Budgetary targets. It is not a target-driven system."

Mr Parekh said that the State Governments should be happy, as revenues have gone up significantly. "But the promise of single rates for across the country still remain a distant dream. It's a setback for VAT."


Enquiries by the Government indicated that some dealers are misusing TIN numbers, quoting and misquoting figures. Besides, trading of invoices between some dealers has hinted at disturbing trends.

There have been instances of suppression of purchases. "We have found it surprising that dealers in some specific business segments do not even bother to claim input credit, though they are entitled," a senior official said.

Warning those traders who commit such offences, the official said that such practices would only invite harsh punishment.

A VAT expert said that frequent amendments to the Act are of little help.

"They should make those policy changes yearly once or twice but not frequently, as it would create confusion."

He added that the advance rule mechanism helps minimise litigation, as the trader would know of the tax rate in advance and in writing.

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