Dasgupta panel rules out VAT rate hike

The Empowered Committee of State Finance Ministers on VAT on Tuesday ruled out any increase in VAT rates as part of a package to compensate states on account of revenue losses due to a 1 per cent cut in Central Sales Tax (CST) that was to have happened in the beginning of this fiscal. “Yes, there would not be any increase in VAT rate now,” panel chairman Asim Dasgupta told reporters in response to a query on whether the panel is ruling out a hike in the state tax rate. There is no need to increase the VAT rate at all, he said, particularly when inflation is on an upswing.

The VAT panel members met Finance Minister P Chidambaram to reach an agreement over a package for states on account of losses due to a proposed cut in CST from 3 to 2 per cent for this fiscal. The intended cut, however, did not happen since there was no agreement on compensation. “This was a very positive meeting. We wanted to reach a point of convergence relating to compensation for loss to the states on account of reduction of CST from 3 to 2 per cent. We have worked out the details and discussed with the finance minister,” he said.

Sources said the Union Finance Ministry has suggested to the states to increase VAT rate from 4 to 5 per cent on intermediate goods this fiscal and to 6 per cent next fiscal, to partly compensate for losses due to the proposed cut in CST rates. The states, however, did not agree to this, particularly when “prices are rising”, the sources said.