Saturday, April 1 2006 16:26 Hrs (IST) - World Time -

New Delhi: Five BJP-ruled states today (Apr 1, 2006) embraced Value-Added Tax, replacing the sales tax system as was done by 22 other Indian states last year.

There were, however, two other states Tamil Nadu and Uttar Pradesh - that are still holding out against VAT.

The five BJP-ruled states of Chhattisgarh, Gujarat, Jharkhand, Madhya Pradesh and Rajasthan issued separate notifications to introduce VAT system, under which tax is imposed only on value-additions to products.

Traders would be able to recover VAT on raw materials and intermediate goods.

Small businesses with a turnover of up to Rs five lakh are exempt from the new tax, which has two main slabs of four per cent and 12.5 per cent.

The five BJP-ruled states, along with Tamil Nadu and Uttar Pradesh had earlier refused to implement the new tax citing protests by the traders community and absence of a clear cut roadmap for abolition of central sales tax.

CST was earlier scheduled to be reduced to two per cent from this fiscal against the present four per cent and eventually phased out by fiscal 2007-08.

However, the empowered committee on VAT had to set up a working group on phasing out of CST due to lack of consensus between states and the Centre.

On March 8, Rajasthan Chief Minister Vasundhara Raje announced in the state budget for 2006-07 that VAT would come into force from fiscal 2006-07, as the state was losing out on incentives provided by the Centre.

The Federation of Rajasthan Traders and Industrialsts, which had called for a state-wide shutdown today to protest VAT, withdrew the call following assurances from the Chief Minister that their grievances would redressed.

In Jharkhand, the government kept as many as 62 items out of VAT purview, while including high speed diesel, aviation fuel, liquor, molasses, narcotics and petrol in the 20 per cent tax bracket. A total of 140 articles have been clubbed under four per cent VAT. Some other articles would have 12.5 per cent tax, state Finance and Commercial Taxes Minister Raghuvar Das said.

Considering the large number of people living below poverty line, the NDA government kept essential commodities like wheat flour, maida, suji, puja articles, handicapequipment, fodder, meat, fish, egg, beetle leaf, lac, leaf plates, firewood, curd, lassi, butter, garlic, ginger and satuout of VAT.

Madhya Pradesh made 53 commodities including sugar, foodgrains, pulses and wheat flour tax-free for consumers as it ushered in VAT for a uniform tax pattern in the country.

The tax free items for consumers also include cloth, tobacco, gur, maida, suzi and molasses, while tax has been reduced on commodities like domestic cooking gas, tea, medicines, fruit juice, paint and icecream, state Commerce and Industries Minister Babulal Gaur told sources.

Finance Ministry sources said Chhattisgarh too had switched over to VAT, and so has Gujarat, one of India's most industrialised states.