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IN A big blow to special economic zones (SEZs), states have decided to levy taxes on goods consumed at non processing areas in SEZs. This will result in all supplies to non-processing areas of SEZs –– which essentially house the social infrastructure like schools, residential premises, shopping complexes –– will attract taxes levied by states like valued added tax (VAT), sales tax, octroi and entertainment tax.

“The empowered committee is of the unanimous view that states should not give any tax exemption in non-processing area of SEZs,” chairman of the Empowered Committee of state finance ministers, Asim Dasgupta, told reporters after a meeting of the committee on May 5.

Till now, states had not made any distinction between processing area where actual production takes place and non-processing area. ”This would mean that supplies like cement, steel required to build social infrastructure in SEZs would now attract tax,” said Mr. L B Singhal, director general of Export Promotion Council for EOUs and SEZs. Centre has already decided to impose taxes on the non-processing area.

The Empowered Committee also decided to form a joint working group with representatives of both state and central government to prepare a roadmap for an unified goods and service tax. The working group will give its report in four months. “GST will be a superior form for VAT. It would bring down the tax load on goods and services. At the same time it would be structured in the way that revenues of both centre and states grow,” Mr. Dasgupta said. He said the committee would also travel to countries which impose GST to study their models.

He said states have also decided to bring a common VAT return and audit form. The form which will provide for some local considerations had been prepared a final view on its introduction would be taken after interaction with trade and industry bodies.

Giving details about VAT revenue, he said collections of VAT implementing states in 2006-07 grew by a 24% to Rs 86,249 crore compared to Rs 69,691 crore the previous year.

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