VAT in India 

* After success in MODVAT (Modified Value Added Tax), Dr Manmohan Singh who was Finance Minister wanted to introduce VAT on sales at state level to avoid double taxation in Sales Tax.

* Dr Manmohan Singh is best Economist, best finance minister. ALL ABOUT DR MANMOHAN SINGH

* He formed a committee headed by Dr Asim Dasgupta who was finance minister of West Bengal.

* Dr Manmohan Singh told him about introduction of VAT instead of Sales Tax and gave him responsibility to convince all the states because as per constitution of India tax on Sales or purchases shall be levied and collected by State (List II Entry No 54)

* As per instructions of Dr Manmohan Singh he called all the finance ministers of all the states and tried to convince.

* Dr Asim Dasgupta explained all the facts before them. ( Facts are merits of VAT and explained how MODVAT was successed ). It took 4-5 years to convince all the state. 

* In 1999, one issue raised and that was, in MODVAT there was loss at an initial stage i.e. for 2-3 years, question asked to Dr Asim Dasgupta that there are chances of loss in VAT too and what about those losses? We are not capable to suffer losses. Further they said " we are agree that there will be gain to state but what about initial losses?

* ( I would like to say that MODVAT came in 1986 and initially Central Government suffered losses but there after there was huge gain to the Government. )

* At this stage discussion on VAT stopped. Election came and BJP Goverment elected. Mr Yashwant Sinha was finance Minister. He called Dr Asim Dasgupta and asked what happened about VAT ? Whats the problem ? Dr Asim Dasgupta told him some states are saying that they are  not ready for VAT due to initial losses.

* Mr Yashwant Sinha told him that tell all the states that initial losses will be compensated by Central Government. Dr Asim Dasgupta announced and all the states were ready for VAT.

* To compensate losses to states, it means provide money to state from central government, to increase revenue Mr Yashwant Sinha increases scope of Service Tax and also increases the Service tax rate from 5% to 10%.

* After drafting of VAT and white paper policy all the state's finance minister came and discussion went on. In that discussion there was a pont raised on CST by Consumption state that sales by one state (produced state) ( Example A ) to another state ( Example B ) is the revenue of state A i.e. CST, what will us get ? Further they said. CST on purchases is not eligible for set off then we have to add on our cost and main purpose of VAT is to avoid double taxation then whats the use of it ? On this issue discussion stopped. BJP Government failed to introduce VAT.

* Again in 2004, Congress Government elected and Finance Minister was Mr P Chindambaram, he called Dr Asim Dasgupta and asked reason for non introduction of VAT. DrAsim Dasgupta told the reason.

* Mr P Chidambaram asked to Finance ministery of different different states in the discussion, Consumption states said there should not be CST (rate of CST in 2004 was 4%) and produced states said there should be CST because revenue from CST is too high. P Chindambaram convinced some produced states. 

* Mr P Chidambaram conclude that CST will be ommitted but gradually, and all the states agreed for VAT. Mr P Chidambaram reduced CST from 4% to 3% and from 3% to 2% but he never decreased the rate from 2% . Today also there is CST.

* For Goods and Service Tax ( GST ) there is also a committe headed by Dr Asim Dasgupta. Hope for the best for our beautiful country.

Regards,

Siddharth Bumb.

siddharthbumb @ gmail.com

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* The above information is provided to the best of my knowledge. If you find any mistake please let me know. Thank you.