Monday, January 17 2005 15:49 Hrs (IST) - World Time -

New Delhi: Finance Minister P Chidambaram today (Jan 17, 2005) unveiled the white paper on Value-Added Tax (VAT) that prescribes a rate of four per cent on a range of 270 items, including drugs and medicines and industrial products, and 12.5 per cent on many other items.

The VAT, which has been endorsed by States for implementation from April this year, will be one per cent on bullion and four per cent on foodgrains with States given the option to exempt foodgrains in the first year.

"This is the first document which has been collectively prepared and put out to the people of the country by the Finance Ministers of all States...We have formed the rainbow coalition to undertake one of the biggest tax reform," Chidambaram said releasing the white paper in New Delhi.

Comparing the State level VAT with the Central excise duty, he said, "In a way it (VAT) is no different from excise duty. In course of time, it is our dream to move on to Goods and Services Tax (GST) in future."

Chidambaram encouraged all States to implement the new tax regime, which would replace the sales tax in States, and said, "On behalf of Centre I promise to fully cooperate with you, compensate you and help in building a computer network system and resolve all problems."

He also said that Centre would stand by with States when VAT is implemented and extend all necessary support.

Praising States for the cooperative federalism in bringing out the white paper the Finance Minister also said that there are other areas which require improvement like agriculture, Panchayati Raj and governance.

Centre and States can be true partners in ensuring good governance in the country.

The chairman of the Empowered Committee on VAT, Asim Dasgupta said the cascading effect of tax will come down after introduction of VAT.

Price of commodities will also come down accordingly. "VAT leads to increase in revenue of States. But in the initial years, there may be some loss in revenue to some States," he said.