Karnataka, Madhya Pradesh, and West Bengal were quite vocal on the formation of a national fund.

These states have also appealed to the Centre for calibrated withdrawal of state tax-incentive schemes, or at least immediate rationalisation of such schemes to create a level-playing field, ensuring optimal national allocation of resources.

The three states have also emphasised the need to classify areas as backward or otherwise, based on national parameters. They have called for a national convergence on this issue, as identification of backward areas based on state averages may be restrictive for channelling benefits to the really backward regions.

Madhya Pradesh Chief Minister Digvijay Singh wanted the Centre to underwrite the revenue losses for five years. He said the Centre should acknowledge the fact that many states have limited areas to raise additional resources to cover a possible shortfall in revenue in the wake of introduction of VAT.

Singh said the states changing over to the VAT regime should be allowed to levy tax on tobacco, textiles, and sugar, provided the tax rate does not exceed 4 per cent. In effect, these goods would then become subject to the same limitations as those applicable to the declared goods in the first category. The centre should continue to impose the additional excise duty on these goods, and distribute the revenue among the states, he added.

Maharashtra Chief Minister Vilasrao Deshmukh said the Centre should make good any initial revenue losses that may result from the introduction of VAT. "One has to be realistic about the ability of the Centre, given its own financial constraints and compulsions. Instead, a more practical course of action would to enlarge the tax base, by removing some of the constraints on taxing declared goods and services," he added.

According to Gujarat finance minister Vajubhai Vala, implementation of VAT would involve transitional loss of sales tax revenues worth Rs 1,070 crore.

The loss would be due to provisioning of setoff of input taxes, rationalisation in the states, and cost of restructuring the sales tax administration and its computerisation. "In view of the difficult financial situation, we are not in a position to bear the transitional losses," he said.

Vala said a consensus be evolved for phasing out industrial incentives among the states. The ongoing schemes in Gujarat will expire in August 2000, he added. He however, made it clear that it would be hard for the state government to do away with incentives, if other states continued their schemes.

Karnataka Chief Minister SM Krishna said though VAT would improve the tax base, the tax structure has to be regulated, to be revenue-neutral and anti-inflationary. He has urged the Centre that VAT's introduction should be in coordination with the other states, and cannot be attempted in isolation.Andhra Pradesh finance minister Y Ramakrishnudu shared Krishna's views on making the VAT regime destinational-based, and said the inter-state sales regime under the Central Sales Tax had to be redesigned to have compatibility with the VAT administration.

The West Bengal government has stressed the need to computerise functioning of sales tax directorates in all the states, and exchange of information across the states.