“Yes, there would not be any increase in VAT rate now,” Empowered Committee of State Finance Ministers on VaT Chairman Asim Dasgupta told reporters in response to a query whether the panel is ruling out a hike in the state tax rate. There is no need to increase the VAT rate at all, he said, particularly when inflation is on an upswing.

States’ dilemma

The VAT panel members met Finance Minister P Chidambaram to reach an agreement over a package for states on account of losses due to a proposed cut in CST from three to two per cent for this fiscal. The intended cut, however, did not happen since there was no agreement on compensation.

Sources said Union Finance Ministry has suggested to states to increase VAT rate from 4 to 5 per cent on intermediate goods this fiscal and to 6 per cent next fiscal to partly compensate for losses due to proposed cut in CST rates.

States, however, did not agree to this, particularly when “prices are rising”, the sources said.  The states suggested that the Centre should go for constitutional amendment to allow them to impose VAT on imports to partly meet the losses, the sources said, adding that the remaining losses should be met by the Budgetary support. However, Mr Dasgupta said Union Finance Ministry does ask states to do this or that.