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And VAT Behaviour is That?

Omkar Goswami


As my friend Jairam Ramesh says, “India is a country in which where you stand for depends upon where you sit”. Nothing could be truer regarding the Bharatiya’s Janata Party’s decision not to introduce VAT in all the BJP-ruled states till such time as all other states did the needful.


Public memory is short but, unfortunately for the BJP, not as short as it would like. After all, people do remember that it was less than six years ago, in November 1999, when the BJP-led government at the centre cajoled all the states to consider VAT, and constituted the Empowered Committee of finance ministers of all 29 states with Dr. Asim Dasgupta, the finance minister of West Bengal as the convenor. It is equally difficult to forget that much of the preparatory work on VAT carried out by the Empowered Committee occurred first when Yashwant Sinha was Finance Minister and then when Jaswant Singh took over. People will also bear in mind that, despite representing a Marxist-ruled state which is  politically antagonistic to the BJP, Dr. Dasgupta executed his task with utmost fairness and diligence, and was civility personified in his relations with both the BJP’s Union Finance Ministers.


The VAT proposal was jinxed from the beginning. Set to be introduced on 1 April 2001, it was postponed thrice — each time for a year, and always on the ground that not enough preparatory work had been done. Just weeks before its introduction in April 2004, it was plagued yet again. This time, Finance Minister Jaswant Singh pulled the plug, and tried to justify the decision on the ground that it would be better for the system if every state adopted VAT simultaneously rather than sequentially, and that more time was needed to get the few recalcitrant states on board. It seemed statesmanlike. In the meanwhile the target was again moved by a year to 1 April 2005.


It is true that simultaneous adopting of VAT is better than a few states introducing it at a time. But that was just a convenient fig leaf for the BJP, and not the real motive for the party to turn its back on this piece of fiscal reform. When it occupied the Treasury benches, the BJP’s public posture was that VAT was good for the economy; privately, however, the party was always disturbed and deeply divided.


Basically, its supporters among the traders are totally against VAT, despite all that has been done to assuage their concerns. Actually, the traders’ opposition to VAT is just a red herring; it isn’t as if VAT comes with more hassles compared to state sales taxes. The matter is far simpler. With detailed VAT records, it will become that much more difficult to dodge income tax. For the traders, VAT today means income taxes tomorrow. Since small businesses and traders are some of India’s greatest evaders of income tax, they aren’t expected to welcome anything that could be the harbinger of more taxing times. Notwithstanding all the reform-like sounds that emanated from Messrs. Sinha and Singh, they knew full well that VAT didn’t have the support of the party’s rank and file.


Being out of government, BJP was liberated of yoke of statesmanship. In the opposition, it could repeat the same excuse for not having the BJP-ruled states implement VAT until all others did so, but greater stridency. So, Yashwant Sinha could meet the press and proclaim why the BJP will not cooperate. And, thus, his party could significantly contribute to creating a crazy situation where the heartland of India will not implement VAT: Rajasthan, MP, Gujarat, Chhattisgarh and Jharkhand because these are ruled by the BJP; UP because Mulayam and Amar Singh are always spoiling for a fight with the Congress and the UPA; and located in majestic southern splendour, Tamil Nadu, because what Amma feels, Amma does.


That’s India’s economic realpolitik for you: speak about the need for reforms when occupying the Treasury benches; and scuttle them when in the opposition. The only true statesman has been Naveen Patnaik of Orissa. Despite being a member of the BJP-led NDA, Orissa has decided to adopt VAT. If only the other noncompliant chief ministers were like him!       


 Published: Business World, April 2005


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