CII moots uniform sales tax policy for southern states

Nitya Varadarajan

Chennai, Sept 9: The Confederation of Indian Industries (CII) southern region along with A F Ferguson has mooted a uniform sales tax policy for the southern states. The proposal, if implemented, aims to prevent flight of business from any one state at the same time encouraging local industries to compete on a more level-playing field. The study by A F Ferguson has brought forward certain recommendations.

Draft a long term common sales tax policy;

A structure of three general rates for sales tax and stamp duty;

Suggested rates are 0%, 4%, 8%, 12% and 50%;

Classification of products in order of criticality for consumers (for lower income groups, middle income groups and high income group) and economy;

Reorganisation of schedules alphabetically as in Karnataka;

Focus on improving compliance and avoiding turnover flight;

Stricter enforcement and use of information technology like bar coding for verification at checkposts;

Remove hindrances to consumption of products procured from state/region;

Permission to print Form C on company's letter head with authorisation from assessing officers.

While the states' revenue officials have reacted positively towards the study, according to CII officials, Karnataka has already started moving towards rationalisation, harmonisation and simplification of its sales tax rates and procedures. Its sales tax rates are lower than the other southern states. The study does not go into the incentives, tax concessions/exemptions extended by each state to attract investments.

Flight of turnover to other states has been a common feature for long. This is particularly true in purchases of consumer durables where bills are raised in Pondicherry or Goa and delivery taken in the state of residence. The high and varied sales tax rates in different states are responsible for this.

According to the study, 45 per cent of the auto component dealers in one southern state (not named) buy goods from outside. Due to tax variations, actual sales tax collections from sale of motor vehicle parts and building materials were just 10 and 28 per cent respectively of estimates in that state.

Another case is that of chemicals. Karnataka charges 4 per cent, Kerala and Andhra Pradesh charge 10 per cent and Tamil Nadu 11 per cent. The different rates encourage billing from elsewhere.

Sales tax is also the highest generator of revenue compared to other taxes like turnover tax, entertainment tax, stamp duty etc. In Karnataka, sales tax accounts for Rs 4,373 crore (61%) of Rs 7,125 crore of total levies excluding the state's share in central levies. For Andhra Pradesh, Tamil Nadu and Kerala, the ratio of sales tax to other taxes is 71 per cent, 68 per cent and 69 per cent. The total tax revenue including the states' share in the central levies during 1997-98 for Karnataka is Rs 9,109 crore, Tamil Nadu Rs 10,825 crore, Andhra Pradesh Rs 9,108 crore and Kerala Rs 6,128 crore.

As per the study, 484 items are covered by sales tax in Karnataka, 522 in Tamil Nadu, 301 in Andhra Pradesh and 308 in Kerala. Arguing for the rationalisation of rates, the study said that multiplicity of rates only brings about classification problems, litigation, delayed and reduced tax collections. Sales tax should be based on the ability to pay for the item, the value and usage of the product without adversely effecting the economy of the state. Further, the rates should be unambiguous and the procedure simplified.

In line with the recent trend in central taxes like reduction in duty rates, income-tax slabs, the study recommends similar steps like abolition of surcharge, move towards value-added tax, rationalisation of tax slabs etc.

Top

Printer-friendly page