The Union government is yet to take a final call on the composition of the fresh list of 44 items proposed to be brought under the ambit of value added tax (VAT) to compensate states for revenue losses arising due to a one percentage point cut in central sales tax (CST) to 3%.
No decision has been taken on including tobacco in the new list of items that will come under VAT. The government is also yet to finalise the date for introduction of the new tax regime. The date of April 1, 2007, which has been mentioned in some media reports, would thus appear speculative at this stage. Asim Dasgupta, West Bengal finance minister and chairman of the Empowered Committee on VAT, said,
The new items to be included under VAT are now being finalised between the Union finance ministry and the Empowered Committee. The process is likely to take some time. No timeframe has also been finalised for introduction of the new tax regime. In response to a specific query on tobacco, Mr Dasgupta clarified, No decision has been taken on bringing tobacco under the new VAT list.
The tobacco sector contributes Rs 8,000-9,000 crore to the national exchequer every year. The industry has been reeling under successive excise hikes in the last few years. But, a decision has been reached that 44 new items are to be brought under VAT and revenue from these items would accrue to the states, he said. As a consequence, total number of items under VAT would go up to 77.
He was referring to the decision taken at a meeting on January 3 in New Delhi between the top finance ministry officials headed by the Union finance minister, P Chidambaram and the Empowered Committee of State Finance Ministers on VAT. At present, 33 items are on the VAT list and are currently taxed by the central government.
The revenue generated from 44 new items is expected to range from Rs 5,000- 10,000 crore for the states. With 1% reduction in CST, states are expected to face losses of Rs 6,250 crore in the fiscal 2007-08.