Finally, an issue on which most parties saw eye to eye. After the cracks on FDI limits and the disagreement over inviting ‘‘outsiders’’ to review the Tenth Plan progress, most State Finance Ministers signalled that they were ready with their Bills on Value-Added Tax (VAT) even as Finance Minister P Chidambaram promised to fully compensate them for any loss in revenue in the first year after they switched to the new system from April 2005.The move to VAT is expected to radically simplify India’s tax system and increase compliance and ease the burden on the honest tax-payer. The more efficient VAT will also do away with the cascading effect of taxation.Assured that they will be fully compensated for phasing out sales tax, 17 states are already ready with their VAT bills. Many others assured Chidambaram that they would soon come up with their legislation and some said that, if necessary, they would take the ordinance route to meet the deadline.Talking to reporters after the meeting, Chidambaram said, ‘‘I am very happy to say that we are on the right path and proceeding at the right pace.’’With major issues ironed out, Chidambaram had reason to smile. He expected all states to be ready with their VAT bills by November this year. The bills, after getting approved from the respective state assemblies, will be sent to the Union Finance Ministry and Law Ministry and finally to the President for his assent.Chidambaram said Madhya Pradesh had already obtained the President’s nod. Four other states have sent their papers while the rest were processing them. Much of the credit for the exercise should go to West Bengal’s Finance Minister Asim Dasgupta, chairman of the empowered committee on Vat, who has worked to narrow differences on the subject and to convince his colleagues in other states that they would be the big gainers.Chidambaram also announced that the Centre had agreed to compensate revenue loss to the extent of 75 per cent in the second year (if necessary) and 50 per cent in the third. Chidambaram added that there would also be a gradual phase-out of the Central Sales Tax (CST) after consulting the technical experts committee on VAT in October. But one issue that still continued to rankle was the service tax devolution formula. The VAT panel will again meet Chidambaram to discuss whether or not to grant powers to states to levy service tax and also to determine the items for Additional Excise Duty (AED).
