Natural gas and imported liquefied natural gas could soon become cheaper if Prime Minister Manmohan Singh's plea to states to lower taxes on them is accepted. In a letter to the empowered committee of state finance ministers, PM has made a strong pitch for a 'declared goods' status for both items that will reduce the VAT on them to 5% from 12% in most states.

"PM has written to the empowered committee...we will discuss the proposal at the next meeting," Sushil Modi, deputy chief minister of Bihar and chairman of empowered committee of state FMs told reporters after a meeting of the panel on Friday in Delhi. The declared goods status for natural gas and LNG would benefit firms like RIL, Gail and gasbased fertilizer and power plants. However, states may not readily agree to this reduction as the growth in VAT collections in the first half of the current financial year has slowed to 20%.

"VAT collections from sectors, such as automobiles, construction, steel and cement, had slowed," Modi said. Modi said the committee had also decided to strongly take up with the Centre the issue of compensation for reduction in central sales tax rate. The Centre had provided for Rs 12,000 crore compensation in the budget for 2011-12 but states had only received Rs 909 crore so far and that too for the previous year. "If the Centre cannot abide by its commitment now what will they do when they have to compensate the states for switchover to the goods and services tax," Modi said. The empowered panel has also approved a SPV for creating IT infrastructure for GST as a not-forprofit company under section 25 of the Companies Act.

Private sector will hold 51% stake in the SPV and rest will be held jointly by states and Centre. "The proposal will now go to union cabinet for its approval," Modi said. The empowered panel had in August given in-principle clearance for creation of IT infrastructure that will allow traders all over the country to use their permanent account number as the tax identification number for all direct and indirect taxes in the country. Having a common identification number has benefits not just for the taxpayers but also for the tax authorities as it helps them keep tab on transactions by establishing links with other tax payments.

The IT infrastructure is crucial for the success of the proposed GST, which will replace plethora of indirect taxes including excise duty, service tax, value added tax, octroi. Modi said the meeting also discussed the European model of GST and the lessons learnt when state ministers visited Europe. He said features of European VAT, such as a floor rate with a band to provide adequate flexibility to member states, a dispute settlement mechanism to prevent deviation and a members council to ensure that all decision are taken through consensus figured in the deliberations at the meeting.

"If they (Europe) with different countries can create a common market why can't India do it," he said. Modi said he would on Saturday meet senior BJP leader and chairman of standing committee on finance Yashwant Singh to convey to him views of the panel on the constitution amendment bill introduced by the centre for implementation of GST.