The empowered committee for introduction of Value Added Tax at the state level would meet finance ministry officials on Thursday, on the crucial issue of compensating the states for any revenue loss.

Sources associated with the committee said while the Centre has agreed to a 100 per cent neutralisation of the revenue deficit of states, due to the introduction of VAT, the exact modalities have yet to be worked out.

The committee of state finance ministers have also asked the Adviser to Finance Minister, Vijay Kelkar, to make a presentation to the committee on the proposed tax reforms that he has outlined in his latest report.

Speaking at a seminar organised by the PHD Chamber of Commerce on Monday, Ramesh Chandra, secretary of the empowered committee said , "We cannot take a view on the subject of Kelkar report, till we have listened to him."

The revenue neutral tax rate suggested by the committee was 12 per cent, while the Kelkar Task Force has recommended a 8 per cent rate.

Chandra said the focus of the committee was on the introduction of a Vat structure at the state level by April 1, 2005.

Consequently giving weightage to a lot of views generated in the Task Force report would drive the committee away from this basis issue.

The Kelkar report has suggested a grand bargain of the states with the Centre, under which the former would get co-equal right to levy service tax across the board.

Simultaneously, the states would have to lower their VAT rate to 8 per cent, while the Centre would impose a 12 per cent tax rate on all goods and services. Chandra said these issues should be taken up only after the introduction of VAT, by April next year.

The secretary of the empowered committee also said there was no proposal to keep the tobacco industry out of the VAT regime. He said the agreed rate of tax would be 4 per cent, which could be topped up by the states with a luxury tax, making the effective rate about 25 per cent.

He also said the local governments would be allowed to continue with octroi duty in the VAT regime, unless the state governments decided otherwise. He said suitable rules for the implementation of Vat would be notified by the end of November, after the nodal act was approved by the states and Centre.