Get set for the VAT drama

BANGALORE: If all goes as planned for the Union finance ministry, you''ll soon have to ensure that your neighbourhood shop gives you a receipt for the match-box you bought. That''s the VAT (Value Added Tax) effect.
Much of the fate of this new regime will unravel on Tuesday when the final draft of the VAT white paper will be unveiled.
There''s a catch though.The run-up to the VAT regime has run into the biggest obstacle. Traders are yet to educate themselves on the new system. With barely 70 days to go for the new regime to kick-in, serious doubts are being raised about the preparedness on the part of the traders. Unlike sales tax, every commercial establishment which is doing business above the thresh-hold level will require to switch over to VAT. It may not affect the petty shop from where you buy chocolates, but most traders will have to register under VAT.
"The department of commercial taxes has called us for a meeting in the first week of February. Only then can we clarify our doubts. If there are laws which are stringent to follow, we will oppose," said a trader in Bangalore. The final draft due on Tuesday is much awaited since it will spell out many key issues including the minimum thresh-hold level of turnover for registration under VAT.
"It will be a mess," says Sanjay Dhariwal, a chartered accountant based in Bangalore and a VAT expert. "They (government) have not even started talking to traders about the system. How can you expect a major change in the way business is done in this short span," Dhariwal says.
Another contentious issue seems to be the promise made by the Union finance ministry to refund losses incurred by states by switching over to the VAT system. If the centre says that refunds will happen in the future, then states may hold back from implementing VAT.
For Karnataka, the loss is estimated to be close to Rs 2,000 crore. "There will be huge losses owing to non-compliance in the initial years" says Dhariwal. However, the solace is Canada which is only the second country in the world with the VAT regime. It is said to have taken a decade to settle down after the system was introduced.
VAT also requires installation of a computer with a software to handle the accounts.
"Many in our (trader) community are not even literate, we need to have a friendly system where we can easily adopt to the new regime. A low-cost and user friendly software is a must," says Vinay Bomb, president of Electrical Traders Association.
VAT may not impact consumers as much as traders but it will be a drama worth watching out for.