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Industry & Economy - Taxation


VAT compensation: Panel to meet Minister after Budget

Our Bureau

New Delhi , June 27

THE Empowered Committee of State Finance Ministers on value-added tax (VAT) is expected to meet the Finance Minister, Mr P. Chidambaram, after the forthcoming Budget to finalise the compensation package being sought by States. The states, which are planning to replace their existing sales tax/commercial tax regime with a VAT system from April 1 next year, have sought compensation from the Centre against any possible revenue loss arising from the transition.

The committee, which met here on Saturday, decided to develop consensus among states on the compensation package over the next couple of weeks, following which the final proposal on the issue would be tabled before Mr Chidambaram at the forthcoming meeting. The committee would also enter into detailed discussions with each other on the list of services that should come under its ambit for collection and appropriation.

The panel, which will meet again within 15 days to sort out pending issues, also took into account the opposition of states to provisions of the draft services tax Bill piloted by the Centre. According to government officials, most states have agreed to implement state-level VAT from April next year.

Following the meeting, the Empowered Committee Chairman, Mr Asim Dasgupta, also met with a Confederation of All India Traders (CAIT) delegation. With states opposing the draft services tax Bill in its present form and the Centre agreeing last week to review the Bill, official sources said the state governments are likely to arrive upon a consensus on the list of services they would like to tax. The issue of services tax is crucial for states since tax mop-up under this head would act as a cushion against any possible losses arising from the move to implement VAT.

The states are likely to take a tough stance on the issues of compensation from the Centre as well as on the services that should be brought within their ambit for collection and appropriation, the sources said. Some of them are even seeking powers to levy tax on services. Currently, the Centre alone has the powers to levy tax on services, as it is a subject under the Union List of the Constitution.

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