States resolve to meet deadline on implementing VAT

The official said that even the North-Eastern states stressed in the meeting that they were ready to introduce VAT from April 1 next year.

It may be noted that the shift from sales tax system to VAT regime has already been postponed twice and any further delay is likely to jeopardise the whole process.

The VAT system will simplify the taxation structure with the help of few rates and full input tax credit to the manufacturers against local purchase of raw materials and capital goods.

A senior Gujarat government official who attended the empowered committee meeting on Friday said that the states have decided to set up a small group of officials to look at convergence of VAT laws formulated by different states. The group will submit its recommendations within a fortnight. He added that the working group on service tax comprising central and state government officials is also slated to submit its report within next few days to the union government.

The union finance ministry has already initiated the process for bringing in Constitutional amendments to facilitate shift of specified services to the states for taxation purposes.

The demarcation of services between centre and the states will be done on the basis of recommendation of the working group. The union government is also likely to approve a formula for compensating the states’ revenue losses on account of VAT implementation. According to the formula, centre will compensate up to 75 per cent of the revenue loss due to VAT system in the first year of introduction. The compensation will be reduced to zero level in the next three years.

A senior Rajasthan government official, however, said that the centre should compensate the total revenue loss due to introduction of VAT in the first year. In the following years, compensation should be decreased steeply so that the states are under pressure to plug the loopholes in a speedy manner, he added.