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Uneven VAT hitting Indian business, exporters hard
May, 24th 2007

Vat system, which India borrowed from the EU, is failing badly. The EU introduced VAT to overcome all tax-related day-to-day problems. Uniform VAT benefited all the member states, brought more transparency in free trade, reduced corruption and resulted in all round improvement in tax collections.

This system improved the working efficiency of all concerns. But in India, we fractured it by introducing uneven Vat within states and removed all physical barrier leading to big revenue losses, increasing corruption at every level, and leaving honest people upset and confused.

In the absence of a uniform tax structure, certain states, like Delhi, have become "heaven" for tax evaders. Delhi has 1% market fee on foodgrain and 0% VAT where as there is 8% market fee, cess and VAT in Punjab and Haryana and 6.5% in Uttar Pradesh, Uttaranchal and Rajasthan.

In the absence of level-playing field, the Foodgrain/rice Industry is suffering badly in some states. Uneven tax structure is forcing traders and rice millers to go for unfair practices with the help of bureaucracy. Industrialists are becoming tax evaders and field officials and officials of mandi boards and excise and taxation departments are becoming parties in rampant corruption. Revenue targets can not be met in such situation, and consequently impact economic growth/development of these states.

The huge difference in tax liability in surrounding states (on every Rs 100 crore turnover, approximate Rs 7 crore extra tax in surrounding states) is a flawed policy, to say the least, and will make every concerned corrupt in short time.

Hurriedly produced/procured food products are smuggled to unhygienic storage places in Delhi and then exported. This has brought in lots of quality complaints. Rice is the most expensive grain and needs special care during handling, milling, drying and storage. Our poor planning and policies have left the industry confused, after modernising its plants and machinery with heavy bank loans and public funds.

Untaxed foodgrain is sold/exported at lower prices, which becomes the benchmark for exports resulting in backward linkage, less foreign exchange, less price for farmers produce, heavy revenue loss to surrounding states. India produces world's best rice varieties but we are unable to get the best prices for our farmers. By correcting our systems, we can improve our export realisations by 15 to 20%.

Different tax structrue is a source for malpractices & corruption. Therefore, the central government should intervene immediately and ensure that all taxes are made uniform. The same will also improve revenue collection.

Vijay Setia
The author is the president of All-India Rice Exporters Association

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