Foodgrains, atta to enjoy another zero-VAT year

The empowered committee of state finance ministers has decided to allow states the option to keep foodgrains, atta, maida, suji and besan at zero VAT (value added tax) for this financial year as well.

Earlier, the option was given only for the last financial year. A decision to extend it was taken at the committee's meeting on Saturday.

The central and state governments have also in-principle agreed to abolish Form D, which allows a concessional rate of 4 per cent on all government purchases. The procedure would bring around Rs 2,000 crore on the states' earnings.

The abolition, which will be implemented to coincide with the phasing out of the central sales tax (CST), would mean that all government purchases would now attract a duty of 12.5 per cent.

The finance ministry, which has submitted its own calculations of non-monetary measures to compensate states for CST phase-out, has also suggested abolition of Form C, which allows CST of 4 per cent to three sectors "" power, mining and telecom.

"It has been found that most of the inter-state sales by companies in these sectors is of a final nature. Since the three sectors did not attract sales tax, the 4 per cent CST was a huge benefit to the companies in these sectors. Earlier, these sectors were controlled by the government. Now the thinking is to withdraw this benefit and let companies pay the full duty of 12.5 per cent," a government official said.

The move, if accepted and implemented, will impact several public sector companies such as BSNL and Coal India.

The move to abolish Form D and amend Form C would require an amendment of the Central Sales Tax Act, 1956.

While the empowered committee had made its calculations taking into account the average of its three best years, the finance ministry's calculations are based on the compounded annual growth rate principle, taking into account the growth rate of CST over five years.

Also, barring some essential items such as foodgrains, crude oil and coal, the North Block has may also remove other items from the declared goods list. It has calculated the revenue gain to states from taxing these items at 12.5 per cent against the present 4 per cent.