Monday, June 9, 2008

VAT Committee Meeting Likely To Discuss Sales Tax Compensation Issues - June 9, 2008

Compensation for revenue loss to the States on account of central sales tax (CST) decrease continues to be a thorny issue even as the Centre recently cut the ceiling rate from 3 to 2 per cent with effect from June 1. The CST compensation issue will come up for discussion at the forthcoming VAT panel meeting on June 16. They are now getting revenue loss compensation claims for CST reduction in 2007-08. The issue is whether the upper limit accorded recently will apply for 2007-08 related claims or not.

Prior to notification of the CST rate of 2 per cent in the last week of May, the Centre and the empowered committee had accorded that the compensation for revenue loss will be limited to the proportionate loss based on the actual collection of CST in the relevant year. The idea of increasing the general VAT rate from 4 to 5 per cent within financial year 2008-09 may also not be pursued. The Centre was keen that States increase the general VAT rate from 4 to 5 per cent and count additional revenues as part of the CST compensation.

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