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States rule out VAT rate hike for now
April, 09th 2008
Reach point of convergence with Centre on CST

Dr Asim Dasgupta

Our Bureau

New Delhi, April 8 States have ruled out any hike in value added tax (VAT) rates from 4 to 5 per cent for now. The Centre was keen that States explore the possibility of increasing VAT rates and count the additional revenues from this move as part of the compensation for proposed reduction in Central sales tax rate (CST) rate from 3 to 2 per cent.

We are not going in for any rate hike now. There is no need to raise VAT rate (from 4 to 5 per cent) at all, Dr Asim Dasgupta, Chairman of the Empowered Committee of State Finance Ministers on VAT, told presspersons after an hour-long meeting with the Union Finance Minister, Mr P. Chidambaram, at North Block on Tuesday.

Dr Dasgupta said that the Centre and the States had reached a point of convergence at the meeting relating to the compensation for loss to the States on account of the proposed reduction of CST.

Dr Dasgupta further expressed confidence that the CST rate cut from 3 to 2 per cent would soon be notified. He, however, said that the rate cut is likely to only be on a prospective basis and not on a retrospective basis, from April 1 this year. The VAT Panel is likely to meet again on April 16 to discuss the CST rate cut issue.

We found that the methodology that was being adopted for compensating the States should be improved upon. So the calculation for estimating the loss will have to be re-done. It can come close to what the empowered committee was thinking. The loss may not be very high. I will not go beyond that, Dr Dasgupta said.

On budgetary support, the VAT Panel Chairman said that there would be some budgetary support from the Centre as part of the CST compensation package. Budgetary support will be there. The exact amount of budgetary support will depend on how we work the loss. It need not be very high, he said.

The methodology used currently is projection method. There are different elements in the methodology and the States are of the view that some of them require a re-look.

Meanwhile, the VAT Panel on Tuesday finalised the model of goods and service tax (GST) that may be adopted in the country from April 1, 2010. It also decided on the roadmap for introduction of GST.

We will submit our recommendations on the GST model (which will be dual GST) as well as the roadmap for GST introduction to the Finance Ministry this month itself, Dr Dasgupta said.

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