The Hindu Business Line : VAT loss: TN claims Rs 965 cr as compensation

Tamil Nadu's tax revenues during April-February 2007 were Rs 14,392 crore compared with Rs 12,331 crore during the same period of the previous year.

New Delhi May 20 The Centre has received a compensation claim of Rs 965 crore from the Tamil Nadu Government for loss of revenue arising from introduction of Value Added Tax (VAT) in that State.

Tamil Nadu implemented State-level VAT from January 1. Official sources indicated that the claim related to the period up to March 2007.

The Centre had announced a compensation package under which the States are compensated for any revenue loss on account of VAT introduction at the rate of 100 per cent of revenue loss during 2005-06, 75 per cent during 2006-07 and 50 per cent during 2007-08.

Tax Revenues

The Tamil Nadu Government had in 2006 requested the Centre to count the three-year period for availing VAT loss compensation from January 1, 2007 as it had decided to introduce VAT from that date. This request was, however, turned down by the Centre.

Tamil Nadu's tax revenues during April-February 2007 were Rs 14,392 crore compared with Rs 12,331 crore during the same period of the previous year. Prior to VAT introduction, tax revenues of the State were growing at about 18 per cent.

The Centre's initial budget provision for the year 2005-06 for the VAT revenue loss compensation to the States was Rs 5,000 crore, which was reduced to Rs 2,500 crore at the revised estimate stage. For 2006-07, provision of Rs 2,990 crore was initially made at the Budget estimate stage and later an additional provision of Rs 1,000 crore was made through first supplementary.

In all, eight States requested for VAT revenue loss compensation amounting in aggregate to Rs 6,765.76 crore in 2005-06.