Gujarat will not seek VAT compensation

With the state registering a 28% rise in value added tax (VAT) collections, the Gujarat government has decided not to seek VAT compensation from the Centre.

Till date, the Centre has paid Rs 5,571 crore as compensation to states for revenue loss owing to the shift to the VAT regime. Of this, the compensation for 2005-06 amounts to Rs 5,300 crore.

This includes the provisional payment of Rs 1,000 crore made recently to the Maharashtra government out of the Rs 2,200-crore claim made by the state for the February-March 2006 period. In all, Maharashtra has claimed about Rs 3,400 crore as revenue loss compensation for fiscal 2005-06.

Karnataka has also been compensated with Rs 270 crore for the period from April to August 2006. However, Gujarat has so far not needed any compensation.

“Other states, including Maharashtra, might have suffered revenue loss in VAT collections as compared to sales tax collection. But as far as Gujarat is concerned, VAT collections have increased by 28% for the nine months ending December 2006 against the sales tax collected for the same period in the previous year. So there is no need for any compensation from the Centre,” Gujarat’s minister of state for finance Saurabh Patel said.

The total VAT collections in the state from April to December 2006 was Rs 9,500 crore as against the total sales tax collection of Rs 7,620 crore for the same period in the previous year.

The VAT compensation package disbursed by the Centre for revenue losses suffered by states due to the implementation of VAT began from April 1, 2005, and will be available only for three years.