The empowered committee of state finance ministers is set to meet finance minister P Chidambaram in December to discuss Centrestate finances, including the contentious issue of sharing of tax revenue between the two.

States want their share in the divisible pool of central taxes to be increased to 50% from the existing 30.5%, a demand that they have also put forward before the Thirteenth Finance Commission

We demand that the grant given through centrally sponsored schemes should be transferred to the states without imposing much conditionality which causes unnecessary delay, Asim Dasgupta West Bengal finance minister and chairman of the empowered committee said after a meeting on Monday. He pointed out that grants given to the states under centrally sponsored schemes add to the debt burden of the states.

The Centre should introduce a comprehensive debt relief package for the states, he added.

The empowered committee also agreed that while implementing the revised pay package recommended by the Sixth Pay Commission, 50% of the additional burden of the states should be borne by the Centre.

States have already put forward these proposals aimed at improving their financial relations with the Centre to the 13th Finance Commission in a meeting in September this year.

Meanwhile, revenue from value added tax continue to rise, despite the slowdown in economic activities. There has been an increase of 23.43% in VAT revenue of all the states between AprilSeptember 2008 as compared to the same period last year. The recession doesnt seem to have impacted the growth till September but there are apprehensions that the growth in Vat collections might be affected in the coming months, Dasgupta said.

But the empowered committee will assess the impact of economic slowdown on the growth of tax collections, he added. The meeting also reviewed the progress made by states in reforming Vat administration. Dasgupta said, We are in the middle of installing TINXSYS across all the states. The target is to make it operational by the end of this fiscal.

TINXSYS is an online system that provides relevant data about tax collection of commodities in each state. By logging on to the system, states will be able to exchange the data and get a clear picture about the tax collection. This will also prevent tax evasion and pilferage, he pointed out.

GST to be introduced in a phased manner

While continuing to be committed to an early introduction of the goods and services tax, the government will operationalise the tax in a gradual and phased manner. GST will be implemented in two phases. Well try to include as many taxes possible in the first phase and the rest will be included in the second phase, Asim Dasgupta West Bengal finance minister and chairman of the empowered committee of state finance ministers revealed on Monday.

The empowered committee, which met on Monday, carried out further discussions on the tax, which is scheduled to be introduced from April 1, 2010. It is hopeful that the deliberations over the tax structure will be over by the year end and a clear blueprint will emerge. We have communicated to the Union finance minister that the GST should be a dual system whereby GST will be levied and collected by the Central government as well as state governments, Dasgupta said, adding, The rate structure will be very simple and uniform for both the Center as well as the states for all the goods and services.

Following differences between the Centre and the states over the model of the tax, the Union finance ministry had asked the empowered committee of state finance ministers to reconsider its proposal to levy a GST with multiple rates for goods and services. North Block is pushing for the original plan of merging excise duty, service tax and state levies into a single tax.