State irrigation minister Eknath Khadase, who represented the government at Monday's conference of chief ministers and finance ministers convened by union finance minister Yashwant Sinha, said, "The main objective of the bill is to safeguard the interest of small investors." He added that under the existing criminal laws, such as the Indian Penal Code, it takes a long time to prosecute NBFCs and their directors.

Khadase said that there were 1,16,023 NBFCs registered with the Registrar of Companies in Mumbai while only 5,063 were registered with the Reserve Bank of India. Of these, 1,346 have net-owned funds of over Rs 25 lakh.

Khadase told The Financial Express that the only machinery availablewith the state government to regulate the functioning of NBFCs was the economic offence wing (EOW) of the Mumbai police with a staff of just 60 personnel. However, the EOW has to cover a wide spectrum of economic offences in banking, shares, job rackets and cheating in general and also has dealt with court references under the provisions of the Criminal Procedure Code (Cr PC).

Khadase said that despite prevailing constraints, the state government has already issued a notification empowering police officers under the RBI Act to make a complaint to courts related to NBFCs.

He reiterated that it will not be possible for the state machinery to take on additional responsibilities of regulating NBFCs without substantial financing from the centre, sanction of sufficient staff and delegation of powers. He added that he has requested the centre to provide financial assistance needed on additional staff, administration and legal work.

On value added tax (VAT), the minister said that Maharashtra was the first totake a lead in its introduction in October 1995. The number of rates were reduced from 21 to 11 and thereafter has been brought down to 3. He added that 95 per cent of the tax was now collected at the three rates of 4 per cent, eight per cent and 13 per cent.

Khadase said that the state government, prior to October 1995, used to levy certain non-recoverable taxes such as additional and turnover taxes in addition to sales tax. "However, the non-recoverable taxes were abolished by merging them with basic sales tax," he added.

He said that the burden of input taxation on manufacturers has been reduced from 6 per cent to 3 per cent. Moreover, the VAT limit for traders will be brought down to zero shortly,

Khadase said that it was not possible to levy VAT on what are called "declared goods," in view of certain restrictions contained in the Central Salex Tax Act. "The centre has so far not effected the necessary changes and the reluctance is due to mistaken notion that such changes have to be a component ofthe full reform of Central Sales Tax."

Khadase made it clear that it would be possible for the state government to take the next steps towards VAT only after the centre passes legislation authorising the state governments to levy VAT on "declared goods."

On rationalisation of central sales tax and state sales tax, Khadase welcomed the finance minister's initiative in setting up a chief minister's committee and said that it was not possible unless the tax policies of the union territories were first reformed. Low rates of tax on high-value goods prevailing in the union territories has forced the states to join the race for reduction of tax rates in an attempt to attract trade and industry.