The Telegraph
Since 1st March, 1999
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Mopup proves VAT virtue
States collect 12% more funds

New Delhi, July 9: With the introduction of the value-added tax (VAT), the state governments have clocked an average revenue growth rate of 12 per cent during the first quarter of 2005-06.

“The implementation of the state-level VAT is quite satisfactory in the first three months. It has resulted in a higher average revenue yield for states, besides an increase in the number of registered dealers, Asim Dasgupta, chairman of the empowered committee on VAT, said after reviewing the new tax regime.

He said while the overall revenue growth was over 15 per cent in June, many states witnessed a growth of over 20 per cent and a few recorded a surge of 30 per cent during the month.

Empowered committee officials said, “The simpler format and a lower incidence of tax has meant less of ‘grey’ trade.” They pointed out that states implementing VAT were showing higher revenue growth, while the ones out of its ambit were lagging behind.

When VAT was introduced in April, the BJP-ruled states had decided to stay out of the VAT net, claiming taxes were unclear. The decision was believed to have been forced by trader bodies, which had the support of the BJP.

VAT panel secretary Ramesh Chandra said only a handful of states like Andhra Pradesh and Maharashtra witnessed lower growth in VAT during the April-June quarter compared with the corresponding period a year ago.

The picture is, however, different in states like Delhi which posted over 30 per cent growth.

Dasgupta said there was buoyancy in revenue collection even in states where the VAT rates are lower than the sales-tax rates, which were in force earlier.

Compensation move

The Centre today agreed on a monthly ad hoc compensation for the states if their revenues from value-added tax fall short of expectations.

“We have discussed in details the method of compensation in case any state loses revenue in contrast to the trend rate of growth. The finance ministry has come out with a simpler method,” Dasgupta said.

According to the new formula, the finance ministry will release ad hoc funds on a monthly basis to states that claim revenue loss because of VAT implementation.

Compensations given by the Centre will be reconciled after getting the quarterly reports from state auditor-generals.

Earlier, the Centre had insisted that the compensation would be based on the reports of auditor-generals. But the Centre relaxed the rules as tax figures are not available with an auditor-general till the end of each quarter.

States will have to inform the finance ministry about VAT collection every month to get the compensation.

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