Centre to compensate states' VAT losses

MUMBAI: The Centre on Saturday said it will compensate revenue losses incurred by states due to the implementation of value added tax (VAT) regime. A majority of states will switch to VAT from April 1, ’05.

“Most states would be implementing VAT by April 1. An empowered committee on VAT would be continuously monitoring revenue generation of state governments and in case of revenue losses, the Centre would adequately compensate them,� Union finance minister’s advisor Parthasarathi Shome said.

On penalties for states that will not be implementing VAT, Mr Shome said there will be no such case as it (VAT implementation) is a decision to be taken by the states, while the Centre is only a facilitator.

To a query, Mr Shome said as long as distribution chain avails input credit tax facility, even smaller states will benefit.

“However, smaller states which are not used to structured tax administration would find it difficult to adapt to the VAT mechanism during the initial period. But they have to align with the new structure,� he said.

Replying to a query, he said VAT on import and services will be implemented at a later stage and the empowered committee will be continuously reviewing the situation.