MP govt may raise upper slab of VAT

Stung by the Centre’s indication to compensate half of what was promised as full compensation against phasing out of Central Sales Tax (CST), the Madhya Pradesh government may increase the upper slab of value added tax to 15 per cent from the existing 12.5 per cent before goods and service tax (GST) comes into effect.

Union Finance Minister Pranab Mukherjee has asked the empowered committee of state finance ministers to work out a package so that states can share 50 per cent of the CST losses in the current financial year.

“As of now we have no immediate intention to increase the slabs but the Centre has taken a U-turn from its promise of compensating us fully against phasing out CST. We were the first to increase lower slab of VAT from 4 per cent to 5 per cent in last year’s Budget on Schedule-II items. Other states also followed it. If the Centre does not compensate states, the upper slab of VAT may go up to 15 per cent,” state Finance Minister Raghavji said.

MP is already opposing the immediate implementation of GST as its tax base estimation, according to Raghavji, has been calculated wrongly by including various already-taxed services and non-taxable items.

“The Centre has to spell out the ways how states can mop up funds to run their economy, repay debt in time and arrange salaries and pensions. If they will not compensate us with what had been promised, we are left with few options. We are not opposing the GST but the Centre has not estimated the tax-base properly and has favoured only multi-national companies. The prices of essential household items and other commodities will go higher while luxury items will fall under lower tax slab after implementation of GST,” the minister said.

The state government has yet to pay arrears to more than 450,000 employees for the pay revision, and repay various loans. Further management of more than 13 per cent productive forest cover of India is, according to him, a ‘Herculean task.’ The state receives Rs 115 crore from the Centre to manage the forest cover which contributes 2.3 per cent to the country’s GDP.

Madhya Pradesh was the first state to increase lower slab of VAT last year on almost 132 household items from 4 per cent to 5 per cent after blaming the Centre for paring its grants and compensations.