VAT claims of states within Rs 5,000 cr

Member secretary of the empowered committee on Value added tax (VAT), Ramesh Chandra today said the compensation claimed by states for revenue loss due to the new tax system would be within the Rs 5,000 crore provided in the Union Budget.

It was earlier apprehended that revenue losses could even cross Rs 10,000 crore during the first year of implementation.

"According to whatever information I have the revenue position is very good in most of the VAT states. Though some will suffer losses, many will not claim compensation," Chandra said here at an interactive session organised by the PHD Chamber of Commerce.

"I will not be surprised if the total composition claimed by states does not exceed the amount of Rs 5,000 crore that was earmarked in the Budget for this purpose," he added.

This statement comes before the empowered committee meets finance ministers from various states on July 9 to chalk out a compensation formula and to discuss various implementation issues.

The Centre had earlier said that it would give 100 per cent compensation for the revenue loss during the first year, 75 per cent and 50 per cent for the second and the third year respectively.

Chandra said the northern states where tax rates were not very high in sales tax were not expected to suffer any revenue loss after VAT. He, however, admitted that southern states and states like Maharashtra where the average tax rate was 18 per cent might suffer losses.

As per the data provided by states to the empowered committee, Chandra said the June collection figures were impressive. Many states have witnessed impressive growth in tax collection except a few like Andhra Pradesh, which had a 3 per cent growth, he added.

He also said that the classification based on the Harmonised System of Nomenclature (HSN) had been finalised and it would be taken up in the meeting on Saturday for ministers' approval.