VAT: Coming! Special a/c to compensate States
Finance Ministry will soon create a separate account under the head ‘Special grant-in-aid’ for compensating States for any revenue loss after implementation of value added tax.
“The Centre will open a special account. The compensation to States will be treated as special grant-in-aid,” official sources said, adding the government has already provided Rs 5,000 crore in the budget for this purpose.
At present, States receive a share of central taxes and also grants from the budgetary allocation. The formula for these central transfers to States is determined by the Finance Commission.
Since compensation for revenue loss can neither treated as a share of central taxes or developmental grants provided in the budget, there was a need to create a separate account for that, sources said.
Last week, Finance Ministry agreed to provide monthly ad hoc compensations to States whose actual revenue growth from VAT falls short of the trend rate of growth.
The empowered committee on VAT had expressed reservation on the earlier compensation method based on Auditors General’s reports, which comes only after a quarter. Accordingly, Centre relaxed the rules as the tax figures are not available with AG till the end of each quarter.
More: financialexpress.com