State governments have asked the committee of secretaries to work out the compensation formula for states by July 31, for mitigating a possible loss of revenue as a result of the shift to the value-added tax (VAT) regime.
On the second day of the two-day meeting of the empowered committee of state finance ministers, the issue of compensation from the Centre and other modalities to be fulfilled prior to the transition to the new regime were deliberated upon, government officials said.
States also expressed concern that the panel mandated to work out the compensation package had not even met, officials said. The empowered committee of finance ministers will be meeting again on June 19 to review the progress on the other issues.
The Union finance ministry had initially set up a committee under additional secretary (revenue) G C Srivastava to work out the compensation package to states. The report, which recommended allowing states to tax select services and levying a tax on additional excise duty items directly had, however, ruled out any cash compensation to states. The package was rejected by states, who stuck to their demand for cash compensation from the Centre.
The Centre had consequently convened another committee under the present additional secretary (revenue), Anupam Dasgupta, for reworking the recommendations of the earlier panel.
The issue of compensation to states has emerged as the primary stumbling block in the build-up to the implementation of a unified tax regime in the country.
