Medicines, including life-saving drugs, are slated to attract a 4 per cent value-added tax, whose date of implementation would be decided after another meeting of the empowered committee on VAT with Finance Minister Jaswant Singh shortly.
"Considering the social implications, the empowered committee felt that the VAT rate on medicines should be brought down from 12.5 per cent to 4.0 per cent," VAT panel chairman Asim Dasgupta said in New Delhi on Wednesday.
Briefing reporters after a meeting with Singh, he said the Centre was ready to compensate states for the revenue loss on this account as there would be some savings by Centre when central sales tax is retained at 4.0 per cent.
The life-saving drugs are unlikely to be exempted from VAT as the Centre has expressed reservation citing huge revenue compensation to states on this account.
The committee was considering exemption or a lower rate of VAT for life-saving drugs while keeping other medicines in the 4.0 per cent slab.
The panel was expected to draw up a list of life-saving drugs for the exemption. But there was a difference of opinion between states and the Centre on the definition of such drugs.
The Union finance ministry has argued that if the list of exempted items are expanded, then the Centre would end up paying a higher compensation for revenue losses of states, which would in turn bloat its fiscal deficit.
On the issue of items which are priced at maximum retail price method, Dasgupta said a legal scrutiny would be done before taking a final decision.