The Telegraph
Since 1st March, 1999
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Centre to fully bear VAT blow in first year

New Delhi, Jan. 17: The government today said it will fully compensate states that introduce value-added taxation (VAT) in 2003-04, and partially over the two years that follow it.

The assurance from the Centre came at a meeting between state finance ministers and finance minister Jaswant Singh. “We will give a revenue compensation of 75 cent in 2004-05 and 50 per cent in 2005-06,” Singh said.

Finance ministry sources said states preferred a time-to-time review of the compensation amount over the proposal for partial revenue compensation from 2004 to 2006.

“They have also demanded that the money compensated should be provided to them every month, instead of being shelled out at the end of a year,” the official said. Singh, he claimed, has agreed to both demands.

“It was also decided at the meeting that the VAT legislation in states and Union Territories would have common provisions on all important matters and a simple VAT law with maximum convergence would be implemented,” the government said in a statement later.

States have been allowed to levy VAT on sugar, textiles and tobacco. “Additional duties of excise will be suitably amended to empower states to levy taxes/VAT with a ceiling of 4 per cent on the three items,” the government said in a statement. There is a consensus that the uniform floor rate can be set at 1 per cent. The finance minister has promised states new laws on Constitutional amendments to enable imposition of service taxes. The draft will be sent to states for suggestions.

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