Associated Chambers of Commerce and Industry On Tuesday asked state governments to implement VAT system in two phases for enabling trade and industry to prepare for the change.

Assocham president R K Somany expressed concern over the inordinate delay in making trade and industry aware of the impact of proposed VAT on their business operations.

Government should announce that the administrative process such as registration of VAT dealers particularly those who would register for the first time can start from April 1, and effective implementation of VAT structure and set off system can start three months after passing the legislation and enactment of rules, it suggested.

In a note to the chairman of the empowered committee of state finance ministers, Asim Kumar Dasgupta, Somany said, "There is a lack of uniformity in respect of availablity of input tax credit in terms of stocks held by trade and industry at the close of business on March 31."

Pointing at the UP draft legislation, Assocham said it does not permit ITC on input raw material and even in Madhya Pradesh, ITC is proposed to be spread over the next five years.

Obviously, such provisions completely negate the philosophy of VAT where ITC should be granted instantaneously akin to the Cenvat provisions under Central Excise, it said.

Moreover, despite assurances that revenue neutral rate for all states would be capped at 12.5 per cent, the draft bill introduced by Karnataka provides RNR of 25 per cent which has resulted in some apprehensions in trade and industry.

Assocham said government should give this provision to the industry for enabling them to prepare for the change. It would also remove the fear of unexpected losses, he said.

Each state should start public campaign by using various channels of communication to educate traders and the general public about important aspects of VAT change over and set up effective mechanism for responding to the queries and clarifications sought by the dealers, Somany said.