India pushes ahead with VAT

Agence France Presse

New Delhi, April 1:

The Indian government pushed ahead on Friday with the implementation of a nationwide Value Added Tax (VAT) despite ongoing protests by traders across the country who warned consumers to brace for a price rise shock. Many shopkeepers in major centres downed their shutters for the third straight day on Friday, complaining of confusion over the manner in which the tax was being implemented. “Today is only the first day of VAT. Its impact will become known in the days to come. We will check for any problems that consumers or traders may face because of VAT,” Delhi chief minister Shiela Dixit told reporters in defence of the tax. She said changes could be made in the law should hitches crop up.

However, traders said the law was being introduced haphazardly and was causing confusion and duplication of taxes. “Today, we are observing a nationwide Black Day. The kind of VAT being brought in will result in a steep hike in prices that will hit traders, consumers and the economy,” said Praveen Khandelwal, secretary general of the Confederation of All India Traders. Thousands of protestors staged rallies and demonstrations across the 20 states in which the tax was implemented, calling for a rollback. VAT is designed to cut multiple layers of levies, boost revenues, reduce inter-state barriers to trade and check tax evasion.

However, seven Indian states controlled by the opposition Bharatiya Janata Party (BJP) have refused to implement the tax, saying they will lose revenue and that administrative problems remain in assessing the levy. Traders say the new system will increase their paperwork, bureaucratic hurdles and the tax burden they have to shoulder. VAT sets new rates on 500 items, with 250 essentials ranging from farm products to medicines taxed at four per cent and the rest at 12.5 per cent. Economists say a nationwide sales tax is essential for the government to fund ambitious spending plans to cut poverty and build new infrastructure such as roads, ports and power plants.

India’s federal and state governments run chronic budget deficits made worse by widespread

tax evasion. Only 20 million people pay income tax in the nation of one billion people and a middle-class estimated at 150 to 250 million.