States may get more for VAT loss

The Centre has conveyed to the empowered committee of state finance ministers its willingness to increase the compensation amount of Rs 5,000 crore (Rs 50 billion), earmarked in the Budget for 2005-06, for reimbursing states which face revenue loss on account of the newly-introduced value-added tax. This is seen as yet another effort to woo non-VAT states to switch to the new tax regime.

"We had a discussion with the finance ministry yesterday. I have been assured by the officials that the compensation amount could even be doubled, if required," Ramesh Chandra, member secretary of the committee said.

The Crisis over VAT: Compelte Coverage

Finance Minister P Chidambaram had said states would be compensated up to 100 per cent of their revenue losses in the first year after switching to the VAT. This amount will be 75 per cent during the second year and 50 per cent during the third year.

The states, however, have to convince the Centre that they have really incurred revenue losses, with a certificate issued by their respective accountant-generals. Later, an audit would also be undertaken by the Comptroller and Auditor-General of India, Chandra said.

He indicated that the committee might have a relook at the present system of VAT audit. Though some states have made audit compulsory, some others have made provisions to accept income tax audit reports for VAT.

"I feel some degree of audit must be there. If there is any dilution in the present law, we will take care of it," Chandra said.

Lashing out at the traders for their negative response to the VAT he said, "They do not want to understand the VAT. Rather, they are spreading mis-information about the new system."

Meanwhile, traders in the Capital today called for an immediate deferment of the VAT owing to a large number of anomalies and disparities between various VAT Acts of states. The call for deferring the VAT comes on the eve of a two-day meeting of the empowered committee to address this issue.

A unanimous resolution was passed at a national symposium on "VAT Anomalies" organised jointly by the Confederation of All India Traders and the Federation of Indian Hardware Manufacturers' and Traders' Association.

It said, "A large number of anomalies and disparities between different VAT Acts of states has necessitated a deferment of the VAT immediately, keeping in view the utter chaos and confusion prevailing across the country."

CAIT said the empowered committee should constitute a small working group of ministers, traders and officials, to look into the VAT Acts under a time bound schedule.

The report of the working group should be submitted to the empowered committee for consideration, it said.

CAIT Secretary-General Praveen Khandelwal said traders would keenly watch the proceedings and the outcome of the two-day meeting of the empowered committee beginning on Monday. He also warned of a  nation-wide agitation, if the issues raised by the traders were not addressed.