The Hindu Business Line : Outgo on VAT compensation may be lower than Budget estimates

THE Centre appears to be on a strong footing on the issue of the Rs 5,000 crore allocated in this year's Budget to compensate the States for possible revenue losses arising from value- added tax (VAT) implementation.

So far, the Finance Ministry has received compensation claims for about Rs 1,400 crore and a sum of Rs 776 crore has already been disbursed. Official sources said that the total outgo for compensation this year is likely to be lower than the Rs 5,000 crore allocated and there would definitely be write-back at the time of the revised estimate.

The optimism for lower outgo stems from the fact that not all States have implemented VAT. Only 24 States and Union Territories have so far gone in for the new tax.

When the Rs 5,000-crore grants-in-aid for 2005-06 were made in February this year, it was expected that all the States would implement VAT. Indications are that even if the remaining States come on to the VAT bandwagon by January 1 next year, they can at the most make claims for January and February within March 31. Further, the claims for March 2006, if any, for all the States, are likely to fall only in the next fiscal.

Meanwhile, the Finance Ministry has asked Maharashtra, Andhra Pradesh, Bihar and a few other States to furnish more details on their latest VAT compensation claims.

Official sources said that Maharashtra has made a claim of about Rs 200 crore for the months of July-August. The Finance Ministry has asked Maharashtra to furnish the Accountant General's certificate for the State's sales tax collections for 2004-05.

"This certificate is important for us to accurately calculate the compensation. At the time of the first claim settlement, we had placed certain conditions that had to be met before the subsequent claims are settled. Furnishing of the State AG's certificate for 2004-05 is one of the conditions," official sources said.

Apart from Maharashtra, the other States from which further details have been sought include Andhra Pradesh, Bihar and Sikkim. Andhra Pradesh has made a claim of about Rs 134 crore for July-October.

Further, the Finance Ministry is also currently processing the VAT compensation claim of Karnataka, which has made a claim of about Rs 460 crore for the April-October 2005 period.

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