The Hindu Business Line : VAT panel to meet on Jan 30 to review implementation

STATE finance ministers' are to meet here on January 30 under the aegis of the Empowered Committee of State Finance Ministers on value-added tax (VAT) to review the implementation of State-level VAT.

Indications are that the issue of central compensation to central sales tax (CST) phase-out may figure prominently in the deliberations of the Ministers.

The States have already made it known to the Union Finance Minister, Mr P. Chidambaram, that full central compensation of CST losses was an essential pre-condition for phasing out this tax from April 1 next year. Moreover, the States are looking at cash compensation as the principal component of any compensation package from the Centre.

The VAT panel chairman, Dr Asim Dasgupta, has been taking the position that the Centre has to factor in not only the current collection levels of CST but also its possible growth before deciding on its compensation.

Currently, the entire CST is collected and retained by the States. In the estimate of the VAT panel, the CST collections next fiscal are expected to be about Rs 18,000 crore and any reduction in CST ceiling rate from four per cent to two per cent from April 1 next year implies that losses to the tune of Rs 9,000 crore have to be compensated.

Although the Finance Minister has agreed to take a positive attitude towards budgetary support (for CST loss compensation), he is understood to have suggested that simultaneously other avenues such as VAT on sugar, tobacco and textiles and VAT on imports would have to be explored.

The Centre and the States may also explore the possibility of a slight increase in certain VAT rates to offset the losses from CST phase-out.