6 more states may switch to VAT in '06

Six more states are set to join the value added tax regime from April with Uttar Pradesh and five Bharatiya Janata Party-ruled states in principle endorsing the new tax regime.

While agreeing on the reduction in central Sales Tax from 4 to 2 per cent, states on Friday demanded full compensation for the loss in revenue on account of Sales Tax estimated at Rs 9,000 crore (Rs 90 billion) next fiscal.

The Empowered Committee of State Finance Ministers on VAT, which met in New Delhi on Friday, also sought greater powers for collection and appropriation of Service Tax.

"The unified view is -- CST reduction will take place subject to full compensation," VAT panel chairman Asim Dasgupta said after the meeting.

Moreover, he said the states want more powers to collect and appropriate Service Tax.

Today's meeting was also crucial as the five BJP-ruled states expressed willingness to implement VAT although the time frame is yet to be set.

"Is is good to know that BJP-run states have taken an in-principle decision to implement VAT. The exact date is being discussed," Dasgupta, who is also the finance minister of West Bengal, said.

Indications are that VAT may be implemented in Gujarat, Rajasthan, Madhya Pradesh, Chhattisgarh and Jharkhand from April next year.

Uttar Pradesh Agriculture Minister Ashok Bajpai also said his state was willing to implement VAT but the date is yet to be fixed. The state government is firming up the VAT legislation.

Apart from UP and five BJP-ruled states, the only state that is yet to decide on VAT is Tamil Nadu.

Welcoming the decision of BJP high-command, Dasgupta said the five states have expressed their views on CST phase out and the compensation package.

After remaining adamant for almost nine months, BJP granted in-principle permission to the party-ruled states to introduce VAT from next year.

However, the VAT implementation in these states would depend on roadmap for phasing out Central Sales Tax, the compensation package and other things.

The states want to make sure that a tax information is put in place and their tax officials are ready to handle the new tax system.