New Delhi, June 22: Finance Minister Yashwant Sinha today asked state Chief Ministers to reduce deficit by raising capital expenditure and containing non-Plan expenditure, and not to hesitate to take tough decisions to restore overall stability."Difficult decisions will have to be taken by all of us so that we may successfully face the challenges of the new millennium", Sinha told the Chief Minister's conference adding "considerable spadework is required for speeding up reforms".Sinha also called on the States to meet the deadline of implementing Value Added Tax (VAT) system on April 1, 2001 through passing of VAT legislations and framing of rules and regulations.The meeting, convened to discuss tax reforms and introduction of VAT, will also debate on the issue relating to service tax as a measure for broadening of the tax base."We are well aware that services contribute about 40 per cent of our GDP and in the Finance Act 2000 I had announced setting up an expert group to study and advise the government about the coverage and structure of service tax related matters," he said.Sinha congratulated the state governments for implementing decisions taken at the previous conference in November last year and said this had enabled them to broaden the tax base and formulate rational and simple tax laws.He said minimising the distortionary effects of the old tax had enabled augmenting of revenue which was a step in the right direction.On the implemenation of uniform floor rates of sales tax, Sinha said though it was laudable and a matter of great satisfaction, ``there are still some deviations in certain states''.Stating that only total compliance would preclude any occasion for rate-war amongst States, he said it had been noticed that a large number of rate slabs continued to exist.``It would be ideal to have convergence of rates as it will facilitate introduction of VAT'', he said.On the problems of states relating to the identity of the listed item i.e. the items listed in the state sales tax laws, Sinha said the Centre proposes to entrust the task of undertaking Harmonized Classificiation and Coding of commodities to the Centre of Taxation studies, Kerala.He said once the report was ready, it will be circulated to the states for cms-Rajasthan Meanwhile, Rajasthan Chief Minister Ashok Gehlot today suggested that the Centre should organise a conclave of all apex trade associations of the States to convince traders to implement value added tax (VAT).Gehlot said since the introduction of VAT may result in direct loss of the tax on raw materials to the States, a mechanism be evolved to compensate such losses by the Union Government.The Centre, he said, should create a pool for the purpose of compensating the loss of revenue to the States.Financial support should also be extended by the Centre to the states for computerisation, environment building and additional staff, he said.Expressing apprehensions that complete switchover to VAT system by April next year may not become a reality, efforts should be made first to conduct a scientific study regarding revenue implications of VAT. If VAT is to be implemented, all States should enforce it simultaneously and at least three years time should be given to the states to prepare themselves for the switchover, Gehlot said.He cautioned that the implementation of VAT could give rise to some problems which might be difficult to handle. Though a decision had been taken to implement VAT from April first, 2001, no state had worked out modalities for the switchover from sales tax to VAT, he added.
