Sunday, April 24, 2005

Prices go up, up, up...

A few weeks back, VAT was launched in India. Yesterday, while shopping for a pressure cooker,our trader gave us two options.

If you want a bill, you will have to pay 12.5% VAT.
If you dont want a bill, take the cooker at MRP.

But hey, wasnt VAT all about debits and credits for taxes paid along the route to manufacture?
Where if raw material supplier A paid a tax of 10 percent and supplied to finished goods producer B who inturn had to pay a tax of another 10 percent, B has to pay tax only on the value added by him. By the time it reaches the customer, the customer only has to bear the tax on the value added by the final producer (in this case B). So why is the customer being asked to pay "12.5% VAT" (which is the top rate and not a uniform rate)?

Heres a report from the Indian express. (and an excerpt)

...The fact of the matter is that while some prices have gone up due to genuine reasons—as products have shifted to higher VAT rate slabs from their earlier tax rates—in some cases, traders and shopkeepers are taking advantage of the confusion.

‘‘Traders are playing a prank. For example, on drugs and medicines, they have got a refund of 8 per cent on the drugs manufactured before VAT came into place. Then there is a 4 per cent VAT. But they are not passing this reduction to the consumers and are, instead, charging both 8 per cent as well as 4 per cent on top of that.’’ ...

Interestingly, they charge this on all their existing stock, conveniently built up, which was not under the VAT regime ( or they would get a refund on that in any case)

Traders who have not yet computerized ( read: who dont pay taxes at all) are making good use of the existing confusion. While these are short term troubles, VAT is good for India and has to be persisted with.

What also has to happen is a way to bring all the other "unbilled services" - those who do pure cash transactions like doctors, hotels, retailers into the legal system. Only then would the parallel economy be integrated with the real, honest, taxpaying economy.

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