Prof Rajita Chaudhuri follow some off-beat trends like organizing make up sessions
Inter-state VAT variations are proving to be the chronic ulcer for trade and commerce in the country. And the problems are visible. Will the yet to be implemented GST prove a breather? Finds out Savreen Gadhoke
This outflux of diesel buyers from Delhi has cost the petrol pumps in the capital city about Rs. 350 million in net earnings within just the first month (April 2010) of the increase in VAT. As industry sources confirm, revenues of diesel sellers have dipped by 40% in Delhi and is expected to fall further by around 80%. Understandably, the worst affected are the oil shops that lie on the border areas of the capital. A field enquiry suggests that those in areas like Ghazipur, Anand Vihar (East Delhi) and Dilshad Garden (North-East Delhi) have seen their monthly revenues fall by as much as 70%.
There is another negative spillover. The month of February 2010 saw the minimum wage levels of unskilled labour being increased by 33.5%. At a time when revenues have fallen, it becomes hard to imagine how the gas station owners can adhere to the rule of wage increase.
So do they have an answer to this bonehead play? The gas station parties believe they do ' retaliate. Adopting a demonstrative method, the Petrol Dealers Association of Delhi and NCR has announced that petrol pumps in Delhi will go on a 24-hour strike every Monday, starting May 14, 2010, so long as the VAT increase is not annulled. Till date, there have been three such day-long shut downs' on April 9, May 14 & May 24. The Association has also threatened to go on an indefinite strike from June 14, 2010, if its demands are not met.
The predicament of the gas station owners in Delhi is just one of such instances, where variable inter-state VAT is bringing about great inconvenience to trade and commerce. While these variations have negatively impacted businesses in certain states, they have also given rise to smuggling and black marketing. This defeats the intention of introducing VAT in 2005. It was conceived with a view to make accounting more transparent, to cut trade barriers, curb tax evasion and boost tax revenues. Items were classified into various categories such as essential, nonessential, luxury items with taxes ranging from 1% to 20%. VAT rates for each state is decided by the individual state governments, and this has led to non-consistency in the taxes levied on similar product categories.
Poultry is one example of how variation in VAT has affected the trade between Kerala and Tamil Nadu. Kerala has depended on Tamil Nadu for poultry supply, for decades. There was no state tax applicable on poultry till Kerala agreed to the VAT regime. Thereafter, consumers buying poultry had to pay 12.5% more on the purchase of poultry in Kerala, while the commodity was kept free of VAT in Tamil Nadu. The effect ' during 2004, around two million live birds were transported from Tamil Nadu to Kerala, post-VAT, the trade almost came to a halt. This gave rise to smuggling of live birds from Tamil Nadu into Kerala to bypass VAT and earn that 12.5% on bottomlines by the traders. The act has become so severe and organised now that even after the strengthening of check posts on borders by the Kerala government, smuggling continues through parallel roads and country routes. Kerala's coconut farmers also faced troubles when the state government levied 12.5% VAT on copra and other coconut products. Subsequently, the government was forced to waive-off the tax to support exports to Tamil Nadu. While TN levies a VAT of 12.5% on automobiles, marbles, tiles, refrigerators, ACs and timber, the state of Puducherry charges just 4%. So why would you buy your next car or your new twin-door refrigerator in Tamil Nadu? A VAT of 12.5% is levied on silk in Karnataka, J&K and Maharashtra, while in Delhi, Punjab, Himachal Pradesh, West Bengal, Andhra Pradesh, Goa, Bihar & Uttaranchal, the tax applicable is just 4%. Tyres and tubes attract 8% VAT in Haryana, while in Delhi they attract 4%. The stark difference shows up as on as much a burger at Kentucky Fried Chicken (KFC). Delhi levies a tax of 12.5% on a KFC snack, while the hungry buyers end up shelling out 13.5% more as tax in UP! Naturally, these differences in VAT hamper sales of certain commodities in selected states. 'Traders are at a disadvantage due to variations in VAT. If any commodity is charged 12.5% somewhere and the neighbouring states charges 4%, certainly, the higher VAT state will lose. And, if that commodity is a high value product, the difference is much. So, obviously the buyer will get it from the adjoining state,' says DP Nag, Secretary, Bengal National Chamber of Commerce and Industries. The culprit ' the Constitutional right that the states have, exercising which, they can charge VAT. And this causes discrepancies in prices, despite there are friendly treaties and trade agreement between neighbouring states.
Be that as it may, VAT, which was implemented with a view to simplify the taxation structure has had negative impacts on certain businesses. However, efforts are being made by various state governments to keep the VAT rates in sync with the neighbouring states. For instance, the Chief Ministers of Delhi, Haryana and UP are soon scheduled to meet to mull over how to reduce variations in VAT levied on diesel, so as to save the aggrieved diesel retailing lot of Delhi. But the truth is: despite efforts on the part of the state machineries, uniform tax remains the only working hypothesis. There is some hope with the Ministry of Finance's target of implementing Goods & Services Tax (GST) by 2011, which will impose uniform tax rates at a national level. But as market experts believe, it seems a far-fetched dream for now. 'At this juncture, no state can be tamed. The GST regime is showing some hope, but the road to that is not as easy as we have a Quasi-Federal Constitution. Under this, states enjoy some autonomy, particularly in List II, where states enjoy full rights to tax as per their whims. Will any state want to lose that autonomy,' questions Ramendra Nath Ganguly, former Assistant Commissioner ' Sales Tax, Ministry of Finance.
A uniform GST is a dream. The asymmetrical VAT is reality. Simply said, the answer lies in market economics, and only the simple Marshallian Law of Demand and Supply can perhaps wipe off what the traders hate for now.
An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).
For More IIPM Info, Visit below mentioned IIPM articles.
IIPM Prof Rajita Chaudhuri's Snaps
IIPM BBA MBA Institute: Student Notice Board
Run after passion and not money, says Arindam Chaudhuri
IIPM BBA MBA B-School: Rabindranath Tagore Peace Prize To Irom Chanu Sharmila
IIPM’s Management Consulting Arm - Planman Consulting
IIPM Lucknow – News article in Economic Times and Times of India
Inter-state VAT variations are proving to be the chronic ulcer for trade and commerce in the country. And the problems are visible. Will the yet to be implemented GST prove a breather? Finds out Savreen Gadhoke
This outflux of diesel buyers from Delhi has cost the petrol pumps in the capital city about Rs. 350 million in net earnings within just the first month (April 2010) of the increase in VAT. As industry sources confirm, revenues of diesel sellers have dipped by 40% in Delhi and is expected to fall further by around 80%. Understandably, the worst affected are the oil shops that lie on the border areas of the capital. A field enquiry suggests that those in areas like Ghazipur, Anand Vihar (East Delhi) and Dilshad Garden (North-East Delhi) have seen their monthly revenues fall by as much as 70%.
There is another negative spillover. The month of February 2010 saw the minimum wage levels of unskilled labour being increased by 33.5%. At a time when revenues have fallen, it becomes hard to imagine how the gas station owners can adhere to the rule of wage increase.
So do they have an answer to this bonehead play? The gas station parties believe they do ' retaliate. Adopting a demonstrative method, the Petrol Dealers Association of Delhi and NCR has announced that petrol pumps in Delhi will go on a 24-hour strike every Monday, starting May 14, 2010, so long as the VAT increase is not annulled. Till date, there have been three such day-long shut downs' on April 9, May 14 & May 24. The Association has also threatened to go on an indefinite strike from June 14, 2010, if its demands are not met.
The predicament of the gas station owners in Delhi is just one of such instances, where variable inter-state VAT is bringing about great inconvenience to trade and commerce. While these variations have negatively impacted businesses in certain states, they have also given rise to smuggling and black marketing. This defeats the intention of introducing VAT in 2005. It was conceived with a view to make accounting more transparent, to cut trade barriers, curb tax evasion and boost tax revenues. Items were classified into various categories such as essential, nonessential, luxury items with taxes ranging from 1% to 20%. VAT rates for each state is decided by the individual state governments, and this has led to non-consistency in the taxes levied on similar product categories.
Poultry is one example of how variation in VAT has affected the trade between Kerala and Tamil Nadu. Kerala has depended on Tamil Nadu for poultry supply, for decades. There was no state tax applicable on poultry till Kerala agreed to the VAT regime. Thereafter, consumers buying poultry had to pay 12.5% more on the purchase of poultry in Kerala, while the commodity was kept free of VAT in Tamil Nadu. The effect ' during 2004, around two million live birds were transported from Tamil Nadu to Kerala, post-VAT, the trade almost came to a halt. This gave rise to smuggling of live birds from Tamil Nadu into Kerala to bypass VAT and earn that 12.5% on bottomlines by the traders. The act has become so severe and organised now that even after the strengthening of check posts on borders by the Kerala government, smuggling continues through parallel roads and country routes. Kerala's coconut farmers also faced troubles when the state government levied 12.5% VAT on copra and other coconut products. Subsequently, the government was forced to waive-off the tax to support exports to Tamil Nadu. While TN levies a VAT of 12.5% on automobiles, marbles, tiles, refrigerators, ACs and timber, the state of Puducherry charges just 4%. So why would you buy your next car or your new twin-door refrigerator in Tamil Nadu? A VAT of 12.5% is levied on silk in Karnataka, J&K and Maharashtra, while in Delhi, Punjab, Himachal Pradesh, West Bengal, Andhra Pradesh, Goa, Bihar & Uttaranchal, the tax applicable is just 4%. Tyres and tubes attract 8% VAT in Haryana, while in Delhi they attract 4%. The stark difference shows up as on as much a burger at Kentucky Fried Chicken (KFC). Delhi levies a tax of 12.5% on a KFC snack, while the hungry buyers end up shelling out 13.5% more as tax in UP! Naturally, these differences in VAT hamper sales of certain commodities in selected states. 'Traders are at a disadvantage due to variations in VAT. If any commodity is charged 12.5% somewhere and the neighbouring states charges 4%, certainly, the higher VAT state will lose. And, if that commodity is a high value product, the difference is much. So, obviously the buyer will get it from the adjoining state,' says DP Nag, Secretary, Bengal National Chamber of Commerce and Industries. The culprit ' the Constitutional right that the states have, exercising which, they can charge VAT. And this causes discrepancies in prices, despite there are friendly treaties and trade agreement between neighbouring states.
Be that as it may, VAT, which was implemented with a view to simplify the taxation structure has had negative impacts on certain businesses. However, efforts are being made by various state governments to keep the VAT rates in sync with the neighbouring states. For instance, the Chief Ministers of Delhi, Haryana and UP are soon scheduled to meet to mull over how to reduce variations in VAT levied on diesel, so as to save the aggrieved diesel retailing lot of Delhi. But the truth is: despite efforts on the part of the state machineries, uniform tax remains the only working hypothesis. There is some hope with the Ministry of Finance's target of implementing Goods & Services Tax (GST) by 2011, which will impose uniform tax rates at a national level. But as market experts believe, it seems a far-fetched dream for now. 'At this juncture, no state can be tamed. The GST regime is showing some hope, but the road to that is not as easy as we have a Quasi-Federal Constitution. Under this, states enjoy some autonomy, particularly in List II, where states enjoy full rights to tax as per their whims. Will any state want to lose that autonomy,' questions Ramendra Nath Ganguly, former Assistant Commissioner ' Sales Tax, Ministry of Finance.
A uniform GST is a dream. The asymmetrical VAT is reality. Simply said, the answer lies in market economics, and only the simple Marshallian Law of Demand and Supply can perhaps wipe off what the traders hate for now.
An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).
For More IIPM Info, Visit below mentioned IIPM articles.
IIPM Prof Rajita Chaudhuri's Snaps
IIPM BBA MBA Institute: Student Notice Board
Run after passion and not money, says Arindam Chaudhuri
IIPM BBA MBA B-School: Rabindranath Tagore Peace Prize To Irom Chanu Sharmila
IIPM’s Management Consulting Arm - Planman Consulting
IIPM Lucknow – News article in Economic Times and Times of India
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