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VAT: revenue loss may hit 15 States

By Alok Mukherjee

NEW DELHI MAY 4. The 15 States intending to go ahead with the value added tax (VAT) from June 1 are likely to be held back by the Centre's decision not to compensate any revenue loss on account of the new taxation system or to phase out the Central Sales Tax (CST), a pre-requisite for proper implementation of VAT.

The empowered committee of the State Finance Ministers on VAT which met here on April 28 and 29 had said 15 States would go ahead with VAT from June 1, provided the Centre clears the legislation in eight States which are yet to get the Presidential accord. Alternatively, they would try to get the Union Finance Minister, Jaswant Singh, to announce a new deadline. As things stand today, neither is likely to happen.

Mr. Singh has made it clear that he is not likely to give out a time-frame for the implementation of VAT countrywide. Asked to specify when he would accept `full preparedness' for implementing the new tax, he said preparedness would include training and preparation of officials to handle the complex VAT down to the district level, legislation by all the States which conform to the model legislation on VAT drawn up by the empowered committee (many States have deviated from it), consultations with trade bodies and other organisations and, finally, no deviation from the revenue neutral rate (RNR) of 12.5 per cent for most items.

Mr. Singh also told the States that the proposed Central compensation for any revenue loss in the first year was based on the list of items identified for 12.5 per cent rate and if there were deviations from this list, it would not be possible for the Centre to keep the compensation promise.

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