Centre to decide on penalising 'non-VAT' states
If 100% compensation for revenue loss is the carrot for states to switch over to the value added tax regime next fiscal, where is the stick? Some states have raised this question in the Empowered Committee of State Finance Ministers.
By Hema Ramakrishnan, TNN |
NEW DELHI: If 100% compensation for revenue loss is the carrot for states to switch over to the value added tax regime next fiscal, where is the stick? Some states have raised this question in the Empowered Committee of State Finance Ministers.
As a result, states, which do not switch over to VAT in the ensuing fiscal, may have to be satisfied with a lower compensation for revenue losses both on account of transition to VAT and the phasing out of the Central sales tax.
The proposal to penalise states which do not comply with the deadline set for implementing VAT has been mooted by a clutch of complying states. The Centre would have to take a final view on the proposal, said official sources.
The Centre has agreed to provide a compensation of 100% in the first year, 75% in the second year and 50% in the third year on the revenue losses on account of a state''s transition to VAT. In addition, states would also be provided with full compensation on phasing out of the CST in the first two years — in ''03-04 and ''04-05.
If the Centre gives its nod to the proposal mooted at the Empowered Committee of State Finance Ministers, any State which switches over to VAT, say, by ''04 would end up getting a lower compensation.
The revenue realisation from sales tax and CST for all the states put together is put at Rs 79,715.05 crore and Rs 10,780.69 crore respectively for ''02-03.
The budgeted revenues from sales tax for a state like Maharashtra, which has already enacted its VAT legislation, is Rs 14,680 crore in ''02-03.
Another Rs 2,080 crore is projected from CST. Maharashtra would be entitled to claim full compensation for revenue losses arising out of transition to VAT as well as for CST phase out in the ensuing fiscal.
The same would apply to the southern States of Tamil Nadu, AP, Karnataka and Kerala, who are likely to implement VAT in the ensuing fiscal. Delhi, on the other hand, may stand to lose if it decides to defer VAT implementation on account of the impending assembly elections.
As a result, states, which do not switch over to VAT in the ensuing fiscal, may have to be satisfied with a lower compensation for revenue losses both on account of transition to VAT and the phasing out of the Central sales tax.
The proposal to penalise states which do not comply with the deadline set for implementing VAT has been mooted by a clutch of complying states. The Centre would have to take a final view on the proposal, said official sources.
The Centre has agreed to provide a compensation of 100% in the first year, 75% in the second year and 50% in the third year on the revenue losses on account of a state''s transition to VAT. In addition, states would also be provided with full compensation on phasing out of the CST in the first two years — in ''03-04 and ''04-05.
If the Centre gives its nod to the proposal mooted at the Empowered Committee of State Finance Ministers, any State which switches over to VAT, say, by ''04 would end up getting a lower compensation.
The revenue realisation from sales tax and CST for all the states put together is put at Rs 79,715.05 crore and Rs 10,780.69 crore respectively for ''02-03.
The budgeted revenues from sales tax for a state like Maharashtra, which has already enacted its VAT legislation, is Rs 14,680 crore in ''02-03.
Another Rs 2,080 crore is projected from CST. Maharashtra would be entitled to claim full compensation for revenue losses arising out of transition to VAT as well as for CST phase out in the ensuing fiscal.
The same would apply to the southern States of Tamil Nadu, AP, Karnataka and Kerala, who are likely to implement VAT in the ensuing fiscal. Delhi, on the other hand, may stand to lose if it decides to defer VAT implementation on account of the impending assembly elections.
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