Tobacco may come under VAT from 2007

Tobacco may come under VAT, as part of a compensation package sought by states from the Centre for revenue loss due to the proposed phase out of the central sales tax from April 1, 2007.

The VAT panel today decided to seek from the Centre a compensation package, including powers on service tax, authority to levy VAT on imports and certain items under the additional excise duty and relaxation on "declared goods", to enable states to go in for reduction in the CST from next fiscal, Panel Chairman Asim Dasgupta said.

The panel also demanded budgetary support if its fiscal demand fell short of revenue loss due to the CST phase out, he added. The CST, levied at 4 per cent on inter-state sale of goods, is projected to fetch Rs 25,000 crore to states during the next fiscal.

Though he did not mention the items from the additional excise duty (AED) ambit the panel wanted for the purpose of VAT, sources said the empowered committee had decided on tobacco. Besides tobacco, textile and sugar fall under the AED net.

The VAT panel would meet Finance Minister P Chidambaram in the first week of next month to discuss the states' demand for a compensation package, he said.