At the State level, the Empowered Committee of State Finance Ministers have finalized a design of VAT to be adopted by all the States/ UTs. This basic design of VAT retains the essential features of VAT and keep them common for all the States/ UTs, like, the rates of VAT on various commodities are kept uniform for all. At the same time, it provides a measure of flexibility to the States/ UTs so as to enable them to meet their local requirements.
At present, there are 2 basic rates of VAT, namely, 4 per cent and 12.5 per cent, besides an exempt category and a special rate of 1 per cent for a few selected items. The items of basic necessities and goods of local importance (upto 10 items) have been put in the zero rate bracket or the exempted schedule. Gold, silver and precious stones have been put in the 1 per cent schedule. There is also a category with 20 per cent floor rate of tax, but the commodities listed in this schedule are not eligible for input tax rebate/set off. This category covers items like motor spirit (petrol, diesel and aviation turbine fuel), liquor, etc. Some of the other features of VAT in the State (as finalized by the Empowered Committee) are:-
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As per provision for eliminating the multiplicity of taxes, all the State taxes on purchase or sale of goods (excluding Entry Tax in lieu of Octroi) are required to be subsumed in VAT or made VATable.
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A provision has been made for allowing 'Input Tax Credit (ITC)' which is the basic feature of VAT. However, since the VAT being implemented is intra-State VAT only and does not cover inter-State sale transactions, ITC is not to be available on inter-State purchases.
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Exports to be zero-rated, with credit given for all taxes on inputs/purchases related to such exports.
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There are provisions to make the system more business-friendly. For instance, provision for self assessment by the dealers; provision of a threshold limit for registration of dealers in terms of annual turnover of Rs. 5 lakhs; and provision for composition of tax liability up to annual turnover limit of Rs. 50 lakhs.
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Regarding the industrial incentives, the States have been allowed to continue with the existing incentives, without breaking the VAT chain. Further, no fresh sales tax/ VAT-based incentives are permitted.
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