The Hindu Business Line : VAT compensation package: States may press for base year change

THE State Governments may seek a change in the base year on which the compensation package for losses, if any, arising from implementation of a value-added tax (VAT) regime from April 1, 2005 is to be agreed upon.

This demand may be placed before the Centre during the discussions on the compensation package at the forthcoming meeting of the Empowered Committee of State Finance Ministers on VAT.

The Union Finance Minister, Mr P. Chidambaram, has convened the meeting in the Capital on September 23.

Besides the compensation package, the status of enactments of VAT legislations by the various State Governments is expected to figure prominently in the discussions at the meeting.

The demand for a change in the base year, if made, would come close on the heels of the recent demands of the States asking the Centre to permit them to levy as well as collect tax on certain services to bolster their revenues.

Informed sources said that the States are keen that "to the extent possible the latest year before the implementation of VAT should be taken as the base year as this would be beneficial to them". It was pointed out that the sales tax collections have recorded a robust growth in the recent years (2002-03, 2003-04).

The fiscal year 2001-02 has been taken as the base year for computation of compensation package, which is unlikely to be accepted by the States.

An expert technical committee appointed by the Finance Ministry is looking into the issue of compensation to States in case of losses, if any, from the implementation of VAT regime from April 1, 2005.

Meanwhile, Mr Ramesh Chandra, Member Secretary of the Empowered Committee of State Finance Ministers on VAT, said that as many as 10 State Governments have enacted the modified VAT legislations. The States had been asked by the Empowered Committee to rework their earlier VAT legislations, if any, and bring modifications in a such a manner that there is a broad commonality among the laws passed by the different States.

The Empowered Committee had set an internal deadline of September 30 for the States to review/revise and enact modified VAT laws.

"So far 10 States have enacted their modified VAT laws as per the agreed requirements. There are still 10 more days to go and we are confident that others will do it by then," Mr Chandra said.

The States that have enacted the VAT laws include West Bengal, Karnataka, Kerala, Madhya Pradesh, Assam, Mizoram, Nagaland, Andhra Pradesh and Haryana. Mr Chandra also expressed confidence that the States would implement VAT from April 1, 2005. He also said that Uttar Pradesh would also move to a VAT regime along with the other States.