States likely to demand compensation for loss due to GST

States are likely to demand compensation for possible revenue loss in initial years due to the proposed implementation of Goods and Services Tax from April 1, 2010, as was done in the case of VAT.

At the official Value Added Tax panel meeting here last month, some states have sought for such a provision in the proposed GST, a key panel official said.

"Some states have raised the issue of compensation, if in initial years there is some loss. We will be discussing with the Government of India, there may be a need for initial comfort, we will discuss it and convey it to the Union Government," he said.

However, care will be taken to work out such rates for GST that neither states nor the Centre loses when the new system is implemented.

VAT panel has accepted the working group's recommendation that there would be two structures for GST--one at the central level and the other at the states' level.

However, the rates are yet to be worked out and the exercise may take about a month.

"Now, the question is what will be the rates, we are working on it - we and the Union Finance Ministry, so that the rates are revenue-neutral, and nobody loses," the official said.

Source : Times of India - India, dated 16/12/2007