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Review of VAT rate on diesel on cards

K.R. Srivats

New Delhi , Sept. 24

THE proposed Value Added Tax (VAT) rate of 20 per cent for diesel is in for a review. The Finance Minister, Mr P. Chidambaram, has given an assurance to the State Finance Ministers on Thursday that the issue of VAT rate on diesel would be looked into.

Informed sources said that Punjab's Finance Minister, Mr Surinder Singla, had at the meeting of the Empowered Committee of State Finance Ministers on VAT made a case for pegging the VAT rate on diesel at 8 per cent.

At the meeting, Mr Singla is understood to have highlighted that the State was not in a position to levy a 20 per cent VAT on diesel. He held that Punjab is mainly an agricultural State and a VAT rate of 20 per cent would adversely impact the farmers, who are significant consumers of diesel.

The Empowered Committee of State Finance Ministers on VAT is of the view that the VAT rate on diesel should be 20%.

Meanwhile, the Centre is quite confident that the States would get additional revenues from the three Additional Excise Duty (AED), which is imposed in lieu of sales tax, items of sugar, tobacco and textiles as and when the power to levy sales tax on these items is conferred upon the States.

Sources said that the Centre is keen that the additional revenues that may arise to the States from the three items should also be factored in the compensation package that is being worked out for possible losses on implementation of VAT.

The current thinking in the Empowered Committee is that the three AED items should not be brought under VAT in the first year of implementation of VAT from April 1, 2005.

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