VAT helps commercial tax collection grow by 11% in 3 months

Govindan Nair, Principal Secretary, Taxation Stamps and Registration, said: “Most of the states have reported an increase of 15 to 20 per cent in revenue collections after the implementation of the VAT. In UP also the growth in revenue collection was at 11 per cent from January to March 2008.”

He added, “During the first nine months of the trade tax regime in the last fiscal, the growth in tax collection was only 4 to 5 per cent.”

For the last fiscal 2007-08, the UP government had fixed Rs 17,314 crore as the target of trade tax collection. The actual recovery by the end of March 2008 was Rs 15,030 crore, nearly 87 per cent of the target.

“Due to the stay on the recovery of the entry tax by the Allahabad High Court, we could not realise Rs 1,000 crore from oil companies. The Central Sales Tax was also reduced from 4 to 3 per cent causing a net loss of Rs 300 crore. With the implementation of VAT, the government had to abolish the UP Development Tax that was levied at the rate of 1 per cent, causing a net loss of Rs 200 crore,” said Nair.

The state government is likely to seek compensation from the Centre to recoup the shortfall in revenue collection on account of the implementation of the VAT.

The proposal for compensation will be filed as soon as the audited accounts of the revenue receipts of the state are finalised by the Comptroller Auditor General to the state government.

The department is also planning to conduct an analysis of the tax collection data from January to March, in order to ascertain the growth of revenue collection from various sectors under the VAT system.

“It will take another three to four months for the benefits of the VAT to reach the common people as the compliance of the new tax regime by the traders is yet to be enforced,” said an official of the department.