The issues of revenue compensation to the states by the Centre and how to allow the state governments to impose a tax on services are expected to dominate the meeting of the empowered committee of state finance ministers here tomorrow.
The committee on VAT, headed by West Bengal finance minister Asim Dasgupta, had asked the Centre to work out a formula for compensating the states for the loss of revenue when VAT is implemented in April 2003. While a committee of officials from the finance ministry had earlier ruled out any form of cash compensation as demanded by the states, tomorrow's meeting will try to allay fears of the states about the revenue losses because of a changeover to VAT.
Sources said the meeting would also discuss the points raised by the finance ministry on the compensation formula. They said the meeting would also try to hasten the process of bringing in the necessary constitutional amendment to allow states to levy service tax for which they do not have any powers at present.
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An option being considered is to lay down the number of services that the states can levy tax on.
The states will also be asked by the committee to expedite the process of bringing in their legislations to implement a nationwide uniform VAT from the beginning of the next fiscal.
Twenty-two states have so far submitted their draft VAT bills to the Centre. The Northeastern states were expected to submit their bills shortly, finance ministry officials said. The Centre had circulated a "model" bill for facilitating the states to enact their respective VAT legislations.
The concessions already agreed to by the Centre include an in-principle clearance to states for levying 4 per cent additional excise duty (AED) on some items to compensate for the revenue loss after VAT is implemented. After all the states submit their legislations, a legal consultant would examine it and a uniform law would be drawn up, officials said.
The finance ministry, however, is yet to amend the Central Sales Tax act for facilitating the implementation of VAT. The VAT rates have been pegged at zero per cent, 4.0 per cent, a revenue neutral rate ranging between 10 per cent and 12.5 per cent rate and 20 per cent.