The Hindu Business Line : Meet on VAT compensation package soon

The Centre and the States appear to have come a step closer towards agreeing on a compensation package for the proposed phaseout of Central sales tax (CST) beginning October 1 even as differences persist on the components of the package.

"Within the next seven days, the officials from the Centre including Dr Parthasarathi Shome, Advisor to the Finance Minister and the Empowered Committee officials would try to work out a solution. We are trying hard on both sides to converge on an agreed compensation package," Dr Asim Dasgupta, Chairman of the Empowered Committee of State Finance Ministers on VAT, told presspersons after meeting the Union Finance Minister, Mr P. Chidambaram, today.

Package

The VAT panel met here earlier in the day to discuss CST compensation package. Both Dr Dasgupta and Mr Chidambaram are likely to meet after a week on the issue of CST compensation package. "We need to have another meeting," Mr Chidambaram said when asked about the outcome of his meeting with the VAT panel chairman on Thursday.

Dr Dasgupta admitted that there was "some difference of opinion" between the Centre and the States on the elements of the compensation package. He, however, expressed optimism that the differences could be ironed out well ahead of the proposed October 1 date for CST reduction.

CST Collections

Asked whether there was any estimate of losses that States would incur on account of proposed CST phaseout roadmap, the VAT panel chairman said that it was estimated that States would lose about Rs 2,500 crore in the six months beginning October 1 this fiscal.

"For the next fiscal, we expect the loss to be about Rs 12,000 crore for the entire year," Dr Dasgupta said. Annual CST collections during 2005-06 stood at Rs 18,000 crore, growing at about 18 per cent every year.

Dr Shome said that the Centre was keen to continue with VAT reforms, of which CST reduction was an integral part. Informed sources, however, said that the States continued to stick to their earlier position of wanting a higher devolution of service tax collections of the Centre (50 per cent) apart from budgetary support as part of the compensation package.

The States are also understood to have taken a position that the Centre's suggestion to hike VAT rates from 4 to 5 per cent and then to 6 per cent in the next two years should not be counted towards the CST compensation package as States are already empowered to hike VAT rates under the aegis of the VAT panel.

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