TRADERS, wholesalers and retailers in India’s financial and commercial capital are on the warpath, following the introduction of the value added tax (VAT) regime in the state of Maharashtra. Hundreds of thousands of traders have been staging noisy demonstrations, and have shut down the markets over the past few days, protesting the implementation of this new tax system. The state government, however, has not succumbed to the pressure tactics, and is pushing ahead with the new system.
VAT has spelt trouble for several state governments in India, and even the two major political parties, the Congress and the Bharatiya Janata Party (BJP), have been shifting their stands on the contentious issue. When the National Democratic Alliance government was in power, the BJP was all for implementation of VAT. But the Congress, which was then in the opposition, discouraged states ruled by it to adopt the new structure.
Now that the Congress-led United Progressive Alliance government is ruling the country, the BJP has become a strident opponent of VAT, and has instructed states ruled by it not to join in. But 20 non-BJP state governments (including Maharashtra, which is ruled by a Congress-led alliance) implemented VAT from April 1.
VAT, a progressive and reformist tax regime, which has been implemented by about 130 nations, has traditionally been opposed by small-time traders and merchants. And the BJP, which draws significant support from the trading community, has been facing a dilemma over the years on whether to back the law, or stick to the old tax regime.
One of the major reasons why traders are seen to oppose VAT is the fact that it plans to introduce transparency in the taxation system. In Maharashtra, for instance, VAT replaces four antiquated sales-tax related laws, and reduces the tax slabs to just two levels: four per cent and 12.5 per cent.
But traders and dealers whose turnover is above rupees half a million annually will have to maintain records and register themselves with the authorities. Many traders are justifiably worried about being harassed by tax inspectors and officials. The widespread opposition to VAT with nearly 10 million traders going on strike since the new tax was introduced reflects the fears in the community.
The state government has also been accused of not doing enough to educate traders and dealers, and in educating them about the new tax format. Another major grievance of the traders is that despite introduction of a simple VAT, other taxes including central sales tax, and octroi will continue for some more time.
Kishore Kharawala, a leader of a powerful trader’s association, warns that an indefinite stir would be launched from next week, if the government does not clarify its stand on the issue.
Kharawala alleges that the entire VAT regime is shrouded in mystery, and traders are clueless about what to charge customers.
While VAT is supposed to simplify the entire tax system at the local level, state governments like Maharashtra have apparently pushed ahead with the scheme for political and financial reasons States that adopt VAT are expected to benefit, with the federal government covering up for any loss in revenue.
Worse, neighbouring states like Gujarat and Rajasthan ruled by the BJP have still note adopted VAT, and traders here fear that they would lose business to their counterparts in those states. Unfortunately, a good tax reform measure, that should have been implemented nationwide is hurting not just consumers, but even the Indian economy, because of the rigid positions adopted both by the government and the traders.
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SUGAR is one of the most politically sensitive commodities in the western Indian state of Maharashtra, and the dominant political parties here including the ruling Congress and the Nationalist Congress Party have close links with both sugarcane growers, and sugar producers.
But despite the political clout of the sugar lobby, the Rs100 billion industry is facing a major crisis. Sugarcane, which is widely grown in western Maharashtra, consumes a lot of water, and billions of rupees have been invested by the state government in mega irrigation projects.
However, environmentalists have over the years warned the government of a looming disaster, as groundwater level in the state has been declining sharply. Many of the farmers, who now get free power, are unconcerned about the water tables, and misuse the precious commodity for raising sugar.
Yet, despite being pampered by governments over the years, the sugar sector is now undergoing a crisis. Maharashtra’s sugar production has gone down by a million tons this year a little under 2.5 million tons and sugar factories are turning sick. The industry most of the 200 sugar factories are run by co-operatives controlled by politicians has run up losses amounting to nearly Rs20 billion.
Poor rainfall in many districts of western Maharashtra over the past few years is the main reason for the miserable performance of the industry. Both productivity and the area under cultivation have dropped dramatically over the past two years, as panicky farmers have switched over to other crops.
Sugar factories have been notoriously mismanaged, and their cumulative losses threaten to destroy the finances of the state’s co-operative banks. The politically well-connected sugar factories owe over Rs40 billion to banks, but are disinclined to clear their dues.
Successive governments both at the federal and local levels have tried to bail out the industry. The National Democratic Alliance government had urged state-controlled oil companies to mix ethanol which uses waste sugarcane as raw material with petrol, not necessarily as a conservation measure, but primarily to help the industry.
The present United Progressive Alliance government is also keen that the oil companies start using ethanol, which could help cane growers. The sugarcane sector, with an annual turnover of Rs200 billion and providing employment to over 4.5 million growers, is a crucial component of the agro-processing economy. More importantly, it has a major role in local politics in the important states of Maharashtra, Bihar, Uttar Pradesh, Karnataka, Andhra Pradesh and Tamil Nadu.
So even if the sector is distorting rural economics, and depleting scarce natural resources like water, politicians can be expected to continue pumping money to ensure that it is kept alive on artificial life support systems.
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MUMBAI, besides being the financial capital of the country, is also the region’s entertainment hub. Bollywood, the Hindi film industry, exerts undue influence on the entertainment sector in the city.
Enterprising restaurateurs and bar owners in Mumbai have in recent years added much-needed zing to the city’s nightlife, by introducing the concept of dance bars. Young women dance to Bollywood numbers, at these bars, entertaining guests, many of who shower currency notes on the dancers.
The state government earns a few billion rupees by way of revenue because of these dance bars, while more than a hundred thousand women earn substantial amounts daily by way of income Mumbai alone has over a thousand such bars, which largely provide harmless entertainment for both residents and tourists.
The dance bars have also been milch cows for corrupt police officials and bureaucrats, besides politicians, who frequently extort funds from the owners, allowing them to stay open till the wee hours of the morning (as against a 1.30 am deadline), but for a price. The Maharashtra government which dreams of making Mumbai into an international financial hub, and a new Shanghai has, however, recently appropriated the role of the moral police and decided to crackdown on the nightlife industry in the state.
Maharashtra’s deputy chief minister R.R. Patil last week announced the closure of dance bars across the state except in Mumbai as these establishments allegedly had a negative influence on the youth. Worse, Patil raised the bogey of the evil foreign hand. According to him, most of the women working at these bars are illegal Bangladeshi migrants, who manage to squeeze money out of the oh-so-innocent local youths.
These foreign dance bar girls pose a threat to state security, claims Patil, who however, could not explain as to why the police were not taking action against them all these years. But most of the owners of these bars are not unduly concerned about the crackdown. As Manjit Singh Sethi the articulate spokesperson of the bar owners association remarks, all these so-called crackdowns are gimmicks by politicians, who are more interested in extorting funds from the cash-rich industry.
Last year, for instance, just before the general elections, the police raided many bars, and the owners accused them of doing so at the behest of politicians, who were looking for funds to fight the elections. Expectedly, the raids were temporary, and by the time the elections were over, the bars were back to normal functioning.
