New Delhi: Bowing to demand from traders, the empowered committee of state Finance Ministers on April 23 decided to exempt from Value Added Tax (VAT) small traders with a turnover upto Rs 5 lakh and pegged the tax on all drugs and certain local items at a low four per cent instead of 12.5 per cent.

For traders and dealers with turnover of Rs 5-40 lakh, it was decided to introduce a simple composition scheme under which there would be one per cent tax on gross turnover, committee chairman and West Bengal Finance Minister Asim Dasgupta told reporters after its marathon meeting.

With the new scheme, Dasgupta said "majority of small traders will not be coming under the VAT net". Implementation of VAT by states to replace sales tax, which was postponed thrice, will now come into effect from June 1.

The panel's decision to increase the upper limit of turnover from Rs 25 lakh to Rs 40 lakh for a dealer to come under the tax system comes after the trading community held a nationwide strike against VAT on March 31 and April 1.

The VAT panel would meet on April 29-30 to draw up the list of certain life-savings drugs, which may get further concessions, Dasgupta said.

PTI