Thursday, August 18 2005 15:50 Hrs (IST) - World Time -

New Delhi: Desperate to woo back bullion trade, which has shifted to low tax-regime states like Gujarat and Rajasthan, the Delhi government is firm on cutting VAT rates on precious metals to 0.25 per cent if the VAT panel fails to make other states raise tax rates to one per cent.

"This time, we will not wait beyond August 24, 2005 for VAT panel to take a decision in this regard. We have lost almost all of our trade in bullion to Rajasthan and Gujarat because of lower tax in these two states," Delhi Finance Minister A K Walia told PTI.

The state will lower VAT to 0.25 per cent from one per cent in line with sales tax in Gujarat and Rajasthan in case no agreement is reached in the Empowered Committee meeting, he said.

At its last meeting on July 9, 2005 the Empowered Committee on VAT had decided that all states will have to impose uniform floor rate of 1 per cent on bullion or face "administrative action."

However, states missed the deadline, forcing Walia to take up the matter with VAT panel Chairman Asim Dasgupta, who assured that the Empowered Committee would meet in the first week of August to take up the issue.

However, that meeting was deferred till August 24.

Walia, meanwhile, had stated after the VAT panel meeting on July 9, 2005 that he would wait till August one before going for cut in VAT rate on bullion. He had again said it would wait till first week of August for the VAT panel to decide on the issue.

This time, Walia said he is firm that the Empowered Committee had to make Rajasthan and Gujarat agree on the uniform floor rate of tax at one per cent on bullion. Otherwise, the state will go for cut in VAT rate to 0.25 per cent on bullion, he said.

Delhi had raised tax rate on bullion from 0.25 per cent to one per cent after it switched over to VAT regime from April this fiscal.

However, Rajasthan and Gujarat still maintain sales tax on precious metals at 0.25 per cent. Both the states have not embraced VAT. But they are expected to abide by the Empowered Committee's decisions on uniform floor rates.

Delhi is complaining that its bullion trade is shifting to Rajasthan and Gujarat because of differences in tax rates

Walia said Delhi will lose over Rs 40 crore in bullion trade to the two states this fiscal.

However, bullion traders claim that the loss is much higher.

"Everyday, the gold market in Delhi is incurring a loss of more than Rs 50 lakh due to the lower sales tax rates in other states," said Ravi Jalan, a leading gold merchant of Delhi.

At the last meeting, VAT panel had said that it will recommend administrative action to the Centre against the states violating the Empowered Committee's decisions. However, it is still not clear what those administrative actions are.