VAT: Govt doles out compensation to states

The finance ministry has sanctioned Rs 259.89 crore (Rs 2.6 billion) for Maharashtra to meet shortfall in revenue due to implementation of value added tax in the first quarter of this fiscal.

The government has given the entire amount asked as compensation by Andhra Pradesh {Rs 193.8 crore (Rs 1.94 billion), Bihar {Rs 47.31 crore(Rs 473 million) and Tripura {Rs 4.89 crore (Rs 48.9 million).

However, the claims for aggregate Rs 800 crore (Rs 8 billion) sought by Karnataka, Karnataka, Assam are still pending with the ministry.

Some of these claims are for the first quarter and some other till July 31, the sources said.

On reports that Assam has withdrawn its claim of Rs 12.36 crore (Rs 123.6 million) for the first quarter, the sources said they have not received any formal request from the state in this regard.

Meanwhile, Bihar has demanded Rs 12 crore (Rs 120 million) of compensation for the second quarter, the sources said.

Pointing out that revenue growth is generally not as buoyant in the initial months, sources said the trend in the first quarter shows that compensation claims would be within Rs 5,000 crore (Rs 50 billion) earmarked for such demands in this year's budget.

Altogether, 21 states that have introduced VAT have seen about 16 per cent growth in revenue in the first five months of this fiscal, which was marred by trade bandhs.

Meanwhile, Uttaranchal has also implemented VAT from this month.

Even if the trend of the first three months prevail during the rest of the quarters, the overall claims for the whole fiscal would turn out to be less than Rs 5,000 crore.

Besides, the claims for the last quarter of this fiscal would be given only in the next fiscal, the sources said.

As per the compensation formulae, the Centre would compensate the entire revenue loss for this fiscal, 75 per cent of revenue loss in 2006-07 and 50 per cent in 2007-08.

The revenue loss does not represent less revenue this fiscal, as compared to the previous year but less revenue as against the projection for this financial year.