New delhi, March 11: The empowered committee on value added tax will work out a compensation package for the two per cent cut in central sales tax (CST).

The VAT committee will meet finance minister P. Chidambaram with the package on March 18, demanding compensation to state governments, who would otherwise have enjoyed the CST earnings.

Asim Dasgupta, who is the chairman of the VAT panel, told reporters here that the committee would also take up the issue of compensation to states for the losses resulting from a cut in VAT on LPG to 4 per cent as proposed in the Union budget 2006-07.

The budget has proposed to bring LPG under the “declared” goods list under the CST Act, which makes it mandatory for states to cut tax on LPG to 4 per cent. Officials claimed that states could lose up to Rs 200 crore because of the rate cut.

“The proposal is good for customers. But there is a revenue loss for state governments. States are demanding 100 per cent compensation,” Dasgupta said after a meeting of the committee.

Some oil firms have reportedly said they would not pass on the tax-cut benefit to customers and instead retain the extra money to make up for their past losses.

The VAT panel, however, has taken a dim view of that. Delhi finance minister A.K. Walia said, “It is the state government’s right to impose or reduce VAT, oil companies have nothing to do in it.”