VAT panel to meet on Thursday

The Centre may not provide 100 per cent compensation to states which introduce value added tax (VAT) during the course of the next fiscal. "This amount is available to states introducing VAT on April 1, 2005 and only if they suffer losses," said Ramesh Chandra, member secretary, Empowered Committee on VAT, while speaking at a roundtable discussion organised by CNBC-TV 18 and Tally Solutions.

While there will be no impact of the decision of five states not to introduce VAT, the Empowered Committee would meet on Thursday, to take stock of the situation. "We will discuss various issues raised by people," he said.

Five BJP ruled states""Rajasthan, Madhya Pradesh, Chhattisgarh, Gujarat and Jharkhand"" and Uttar Pradesh and Tamil Nadu, have expressed their inability to introduce VAT on April 1, 2005, the fourth deadline the country has set for the purpose. Chandra said the Centre would go by the decisions of the committee on contentious issues.

Responding to a query, on diversion of trade between Karnataka and Tamil Nadu, S Madhava, Head Indirect Tax Practice at PricewaterhouseCoopers, said that states implementing VAT would benefit at the expense of states not doing so.

However, with a special entry tax to be enforced, the incentive to introduce VAT would be strengthened as there would be a flight of trade from Tamil Nadu to Karnataka, said Sanjay Dhariwal, a VAT expert.

Southern states, with higher sales tax rates would suffer losses, while Northern states, where the rates were lower would gain from introduction of VAT.

Chandra said that the roadmap on central sales tax (CST) was clear.

"In 2005-06,the rate was to be at 4 per cent, to be brought down to 2 per cent in the next year and further down in the next year," he said, adding that the Empowered Committee and the central government were committed to phasing out of CST.