The Centre would prefer to compensate states for any losses on account of the proposed goods and services tax (GST), rather than giving exemptions, a finance ministry official said today.

There should be fewer exemptions if we have to widen the tax base. We will compensate the states if they feel including some particular item in GST leads to revenue loss, S Dutt Majumder, member of the Central Board of Excise and Customs (CBEC), said at a seminar on indirect taxes by PHD Chamber.

Presently, more than 300 goods are exempted in the Centres list and about 99 are exempted from the value added tax (VAT) by states. Some of the items are common in the state and the Centre list. The government has referred the matter of compensating states instead of giving exemptions to the 13th Finance Commission headed by Vijay Kelkar.

Besides, some states want to keep local taxes levied by municipal bodies out of GST. While Maharashtra wants to keep octroi out of the tax ambit, Punjab and Haryana want the purchase tax out of the proposed tax net.

The Centre is going through the proposals made by the empowered group of state finance ministers in the discussion paper on GST released this week. Other than exemptions, the government has expressed its reservations on areas like the threshold limit for taxation, treatment of goods like alcohol, tobacco and petroleum products. It has found merit in some issues like zero-rated exports.

The committee has proposed a threshold of gross annual turnover of Rs 10 lakh for both goods and services in case of states and Rs 1.5 crore for goods to be taxed by the Centre.

We have not taken a final call on it. We have to have a lot of discussion on this issue. It will give rise to distortions Whether we should give the same treatment to both tobacco and alcohol, that issue also needs to be sorted out, Majumder said.

Meanwhile, the government will make electronic filing of service tax mandatory in the next two months, CBEC member YG Parande told reporters on the sidelines of the seminar. He also expressed hope that the government would meet service tax collection target during the current financial year.