The Hindu Business Line : BJP meet may focus on VAT revenue loss compensation and CST phase-out

VAT revenue loss compensation and the revenue implication of a phase-out of the Central Sales Tax (CST) are some of the main issues that may be discussed by the BJP high command, which meets here on Monday to take a crucial decision on VAT implementation in five BJP-ruled States.

The BJP President, Mr L. K. Advani, will chair the daylong meeting, which is to be attended by the Chief Ministers of the five BJP-ruled States.

Rajasthan, Gujarat, Madhya Pradesh, Chattisgarh and Jharkhand are the five BJP-ruled States that are yet to switch over to State-level VAT. The other four States/Union Territories that have not yet implemented VAT are Uttar Pradesh, Tamil Nadu, Pondicherry and Chandigarh.

Revenue loss: One of the issues that could weigh heavily in the decision-making process is the proportion of VAT revenue loss compensation that would be available to States moving to the new regime.

Informed sources said that States that go in for VAT implementation this fiscal would alone be entitled for 100 per cent compensation of the revenue losses, if any.

Even if a State goes in for VAT implementation from January 1 next year and incurs revenue loss as per the agreed formula, the extent of compensation would only be proportionate (100 per cent compensation for the three months).

"The compensation package agreed between the Centre and the VAT panel is financial year-wise. It is so designed to incentivise early adoption of VAT. Any State that implements VAT from next fiscal would only be entitled for 75 per cent compensation. It would only be 50 per cent if VAT is implemented in say 2007-08," the sources said.

CST phase-out: States such as Rajasthan are aggrieved that the CST is not eliminated at one go and is only being phased out. The VAT panel had, in principle, come to a decision that the ceiling rate of CST would be reduced from 4 per cent to 2 per cent from April 1 next year.

As a consuming State, Rajasthan is not very happy about the proposed phase-out of CST under the VAT regime. Further, there is still no clarity on how the States are to be compensated by the Centre for the losses arising from CST rate reduction.

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page