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States demand compensation for tax cut on LPG

Special Correspondent

Panel to meet Chidambaram

NEW DELHI: The Empowered Committee of State Finance Ministers on Value Added Tax (VAT) will meet Union Finance Minister P. Chidambaram shortly to discuss the modalities of the proposed cut in the Central Sales Tax (CST) to two per cent and evolve a compensation package for States.

Briefing newspersons here on Saturday, Chairman of the Empowered Committee and West Bengal Finance Minister Asim Dasgupta said the States' commissioners of commercial taxes would first have a meeting among themselves on March 18 to arrive at a mechanism for the compensation package and then meet Mr. Chidambaram.

At the meeting with the Finance Minister, the panel, Dr. Dasgupta said, would discuss the issue of compensation for the losses incurred by the States after the cut in VAT or sales tax on LPG to four per cent as per the proposal in the Union budget 2006-07.

With the budget placing LPG in the "declared'' goods category under the CST Act, it has become mandatory for States to cut the levy on LPG to four per cent. On implementation, all the States put together would stand to lose about Rs. 200 crore in revenue.

"The proposal [cut in tax on LPG] is good for customers. But there is a revenue loss for State governments. States are demanding 100 per cent compensation. And I think it is only fair,'' Dr. Dasgupta said after the Empowered Committee meeting here.

As for the BJP-ruled States, which are yet to implement VAT, Dr. Dasgupta said the five States, namely, Chhattisgarh, Gujarat, Jharkhand, Madhya Pradesh and Rajasthan, had decided to switch to the new tax regime from the new fiscal beginning April 1, 2006.

The CST is to be reduced to two per cent during 2006-07 and completely removed during 2007-08 from the current slab of four per cent.

The first-stage reduction itself is expected to result in a revenue loss of Rs. 9,000 crore to States.

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