BUSINESS

States to get monthly compensation for VAT

WOOING OTHER STATES: The Chairman of the Empowered Committee of State Finance Ministers on VAT, Asim Dasgupta, along with Parthasarthy Shome (second left), Advisor to Finance Minister at a conference in New Delhi on Saturday. — Photo: S. Subramanium

WOOING OTHER STATES: The Chairman of the Empowered Committee of State Finance Ministers on VAT, Asim Dasgupta, along with Parthasarthy Shome (second left), Advisor to Finance Minister at a conference in New Delhi on Saturday. — Photo: S. Subramanium  

Special Correspondent

NEW DELHI: In what has come as a major relief to States such as Andhra Pradesh and Maharashtra, the Centre on Saturday agreed to pay a monthly `ad hoc' compensation in case their revenue from the Value Added Tax (VAT) fell short of their projections on the basis of collections in earlier years through the erstwhile sales tax regime.

"We discussed in detail the method of compensation in case any State loses revenue in contrast to the trend rate of growth. The Finance Ministry has come out with a simpler method," the Chairman of the Empowered Committee on VAT, Asim Dasgupta, told newspersons after the review meeting with the State Finance Ministers here.

As per the new formula, the Finance Ministry, Dr. Dasgupta said, would release ad hoc funds each month to those States which declare that they have suffered a revenue loss on account of implementation of the new tax regime. The relief package given by the Centre each month is to be reconciled later after receiving the quarterly reports on the revenue collections from the State Auditor Generals (AGs).

The essential difference is that earlier, the Centre had insisted that the compensation to be paid to the States would be on the basis of reports of AGs. However, this has been relaxed as the tax collection figures are available with the AGs only at the end of each quarter. However, to receive the compensation on a monthly basis, the States will have to inform the Finance Ministry about the collections from VAT each month.

Elaborating on the ad hoc monthly payment formula, Dr. Dasgupta noted that the States would receive compensation only if their actual collections from VAT is lower than the projected revenue. For this purpose, the projected revenue is calculated by taking the weighted average of tax collections in the best three years of the last five years.

It may be recalled that the Centre has agreed to fully compensate the States that suffer revenue losses in the first year of VAT implementation. In the second year, it is to be 75 per cent of the revenue loss and 50 per cent in the third year.

Meanwhile, it is learnt that Maharashtra will seek about Rs. 400 crore as compensation for the first three months of the current fiscal. It has already sent its claim worth Rs. 90 crore for April, the Maharashtra Sales Tax Commissioner, B. C. Khatua, said. The revenue loss in May is Rs. 208 crore which will be forwarded to the Centre, while the shortfall in June is expected to be about Rs. 100 crore, he said.

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