States rally for retaining existing VAT rate

09 Apr '08

2 min read

It is an occasion of delight for consumers as State Government has refused to raise the floor rate of value added tax from 4 to 5 percent for the current fiscal year against the wishes of the Central authorities.

Both the Central and State Governments will meet on April 16 to carry out a constitutional amendment for furthering the imposition of VAT on imports. Besides, they will also restructure modalities of compensation formula for reducing central sales tax (CST) from 3 to 2 percent with effect from May 1.

However, the states are expected to lose close to Rs12,000-13,000 crore if the CST rate is brought down to 2 percent.

Mr Asim Gupta, Chairman of the Empowered Committee of State Finance Ministers, told the media, “We have reached a point of convergence. This is a very positive outcome of this meeting. We felt the methodology should be improved upon and so the calculation will have to be redone. There is no need to raise VAT rates.”

Already in the last fiscal year, revenue collection from VAT grew by nearly 27 percent.

Moreover, the State Government has also refused to comply with the removal of additional excise duty from textiles and immediate imposition of VAT. An agreement on the issue will be concluded only in the next fiscal year and that too after receiving the consent of the stakeholders.

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