The Hindu Business Line : States yet to claim for revenue loss from VAT implementation — It is 'early days', caution Ministry officials

As part of the VAT design, the Centre had in consultation with the VAT panel decided that the 4 per cent CST would co-exist with VAT during fiscal 2005-06.

K.R. Srivats

New Delhi June 23

OF the 20 States that introduced state-level value-added tax (VAT) from April 1, not even one has till date approached the Finance Ministry for compensation of any revenue loss from VAT implementation, a senior Finance Ministry official has said.

Under the VAT design that has been implemented, States can make a monthly claim to the Centre for compensation of the revenue loss, if any, arising from VAT implementation.

The Centre would go by the certification of the accountant general of the State concerned for processing the compensation claims.

The Finance Ministry however contends that these are "early days" to come to any conclusion that the VAT implementation has led to revenue buoyancy in the States that introduced VAT from April 1 and therefore no claims for compensation have so far been made on the Centre.

"A reasonable picture on revenue buoyancy would emerge only after couple of months. A decision on CST is likely only at the end of the current year," the Finance Ministry official said.

Toeing the line of the Finance Ministry, the VAT panel is also of the view that the success of the switchover to a VAT regime in terms of revenue buoyancy could be gauged only from July.

"The first two-three months are misleading ones as sales tax revenues for the last month of the financial year ended March 31 are collected up to May 15. The first pure month of VAT implementation would be June and it is for this month that we will have to see whether there is any revenue buoyancy," Mr Ramesh Chandra, member of the Empowered Committee of State Finance Ministers' on VAT, told Business Line.

On the possibility of Ccentral sales tax rate cut in the current fiscal if the post-VAT revenues show good buoyancy, Mr Chandra made it clear that it was for the Centre to take a call on the issue on CST phase out.

As part of the VAT design, the Centre had in consultation with the VAT panel decided that the 4 per cent CST would co-exist with VAT during fiscal 2005-06.

"The question is not on the principle of CST phase-out. We all are aware that CST has to go. The real issue is the timetable for phase-out and this depends on the Centre," he said.

While the possible loss on implementation of VAT is quite "unpredictable," Mr Chandra pointed out that the loss on account of CST phase out is always a "certainty" and can be assessed.

The annual CST collection stood at about Rs 15,000 crore. He also highlighted that there was no proposal as yet for any reduction in CST rate.

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