If Delhi dithers on switching over to the value-added tax regime, the four northern states of Punjab, Haryana, Himachal Pradesh and Rajasthan are also likely to delay their transition beyond the April 1 deadline.

"Delhi's not switching over to the VAT regime could have wider ramifications in terms of most other neighbouring states delaying their transition beyond the April 1 deadline," a government official involved in the exercise said.

In a meeting with Finance Minister Jaswant Singh last week, Delhi Chief Minister Shiela Dikshit had sought discretionary powers to charge a lower than prescribed 12.5 per cent VAT rate to preserve the "distributive character" of the state.

Union Finance Secretary S Narayan was expected to take up the issue with Delhi government officials to ensure the state's transition to the new regime by April 1.

Officials said the Centre is unlikely to yield to any such demand since neighbouring states will also come up with similar ones.

Delhi is yet to officially firm up a decision on the switchover to VAT by April 1. An ongoing agitation by traders and a lack of legislative preparedness for the changeover is likely to further delay the process.

Traders and the unorganised sector are bent on stalling the move to implement VAT in Delhi due to worries that dealers' margins would be squeezed once it is implemented.

According to government officials, the traders' opposition to the VAT regime stems from the fear that evasion would be difficult under VAT.

The new tax regime is based on the premise that at each stage of the retail chain, a challan is provided on self-assessment basis to the next link of the chain to setoff the portion tax already paid.

Under the present system, incidence of taxation comes at the end of the value chain, which provides an incentive for a dealer to evade.