The Hindu Business Line : CNG: Panel on VAT hopeful of sorting out contentious issues

THE Empowered Committee of State Finance Ministers on value-added tax (VAT) is hopeful of sorting out issues relating to levy of an appropriate VAT rate for compressed natural gas (CNG).

The VAT rate on CNG has been a bone of contention between States, especially those that share borders like Delhi and Uttar Pradesh.

"I am aware of the issue. We will take an appropriate decision on CNG," Dr Asim Dasgupta, Chairman of the Empowered Committee of State Finance Ministers, said.

Even as the Government of Uttar Pradesh has, in principle, agreed to the implementation of VAT regime, it has highlighted a number of "ground-level" difficulties that needed to be sorted out before VAT is introduced.

"The Uttar Pradesh Government had 10 points of genuine difficulties. We have already resolved many of them," Dr Dasgupta said.

On his part, the Uttar Pradesh Finance Minister, Mr Ashok Vajpayee, admitted that VAT rate on CNG is a contentious issue.

The Uttar Pradesh Government is looking to allow usage of CNG in certain cities of the State. It apprehends that trade may get diverted to Delhi if the latter were to exempt CNG from VAT. Further, there is also the apprehension that adoption of CNG may lead to dip in diesel consumption, thereby resulting in revenue loss for Uttar Pradesh if it were to match the VAT rate that is being adopted by Delhi on CNG.

Another issue that is a point of concern for the Uttar PradeshGovernment is the decision of the empowered committee to restrict the flexibility of choosing items of local social importance to a maximum of 10 items.

"Uttar Pradesh is a large State with diversified industrial base and has many items of local importance. We can choose only 10 items of local importance to be placed under exempted category. This is somewhat restrictive," Mr Vajpayee said.

The white paper on VAT, released on Monday, specifies that there will be about 46 commodities under the exempted category. This will comprise natural and unprocessed products in unorganised sector, items that are legally barred from taxation and items that have social implications.

Included in this is a set of maximum of 10 commodities flexibly chosen by individual States from a master list of goods (finalised by the empowered committee) that are of local social importance for the individual States without having any inter-State implication.

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