The Hindu Business Line : Chidambaram to meet VAT panel on CST

THE Finance Minister, Mr P. Chidambaram, will meet members of the VAT Panel here on Friday in an attempt to resolve the crucial issue of compensating states for possible revenue losses arising from the phasing out/elimination of Central Sales Tax (CST).

VAT implementing states have in principle agreed to reduce the ceiling rate on CST from 4 to 2 per cent from April 1 next year.

But most of the states want the Centre to compensate them for revenue losses arising from CST phase-out/elimination.

While there is agreement between the Centre and the states on how the latter should be compensated for revenue losses arising from VAT implementation, there is no agreement yet on compensation for losses arising out of CST phase-out. CST collections during 2004-05 stood at about Rs 15,000 crore.

The VAT Panel has already indicated the contours of the compensation package it expects from the Centre for CST-related losses next year.

The Empowered Committee of State Finance Ministers on VAT will meet here on Friday morning to firm up their proposal on CST compensation.

At the meeting, the views and concerns of the BJP-ruled states are also likely to be discussed.

The BJP-ruled states had, on Monday, voiced a slew of concerns about the VAT system and stressed the need for compensation for CST-related losses.

As part of the compensation package for CST reduction, the VAT Panel expects a combination of measures from the Central Government. An important element of the package is that a part of the compensation must come from the Union Budget.

Further, the VAT Panel feels that budgetary support must be combined with adequate devolution of financial resources obtained by the Centre through service tax, empowering states to tax certain services, empowering states to impose VAT on sugar, tobacco and textiles (additional excise duty items), and devolution of entire revenues arising from VAT on imports.