Finance Minister P Chidambaram on Wednesday met chairman of the Empowered Committee on value-added tax, Asim Dasgupta, to evaluate the progress made by states on implementing the new tax regime from April 2005.

The meeting assumes importance in the light of United Progressive Alliance government's promise to compensate states for revenue loss, if any, when VAT comes into being partially replacing the 4 per cent Central Sales Tax.

The VAT Regime: Complete Coverage

Dasgupta apprised Chidambaram of the preparedness of states for VAT, official sources told PTI.

States have finalised VAT rates for about 500 items with 250 essential commodities including agro products, medicines and manufacturing inputs slated to attract a 4 per cent tax, while 217 other items would attract 12.5 per cent tax.

About 41 items like petrol, diesel, ATF, agri equipment and newspapers would be exempt from VAT while precious metals like gold and silver would attract only 1 per cent tax. Sugar, textile and tobacco items would be out of the VAT net.

The Empowered Committee on VAT will soon come up with a formal list of the items and the tax rates.

The VAT panel, which met on Tuesday to iron out differences, also took up with Chidambaram the issue of a compensation package for any revenue loss when they switch over to the new tax regime.

The panel is in the process of harmonising and fine-tuning the VAT legislations, which have to be passed by the respective state Assemblies. The bills would then be sent to the Finance and Law Ministries for further vetting before going to the President for his assent.

Till now, Haryana and Madhya Pradesh have obtained approval for their VAT legislations and Haryana has already put in place a VAT system.

Eight other states have obtained approval from their respective Assemblies for the VAT Bills.

Other states are in the process of firming up the bills. Some of the northeastern states have sought Centre's assistance for putting in place necessary framework for VAT introduction.

In Wednesday's meeting, Dasgupta also discussed the roadmap for phasing out central sales tax.

Initially, it was decided that CST would be brought down from 4 to 2 per cent in the first year and then to 1 per cent in the second year.