New Delhi: The government said on December 19 it will try to compensate states for the first three years for any loss of revenue they might suffer due to introduction of Value Added Tax (VAT) regime next fiscal.

"I have worked out a formula on VAT which will be presented at the National Development Council (NDC) meeting scheduled this December 21," Finance Minister Jaswant Singh said in the Rajya Sabha replying to a debate on a Mid-Year Review of Indian Economy and its implications.

VAT is scheduled to be introduced throughout the country from April 1, 2003.

"Introduction of VAT from April 1, 2003 will be the right thing to do," he said adding for rationalisation of taxes to happen, India needs to begin taxing services while simultaneously expanding the tax base.

Recalling that Union Cabinet on December 18 granted approval to bring a Constitution Amendment Bill on the issue of service tax, Singh said he would be discussing this issue also at the NDC meeting and the legislation can be then introduced in the next session of Parliament.

Brushing aside criticism from members on bringing out a "bland and shallow" mid-year review, Singh pointed out that the exercise was the correct step.

PTI