The Planning Commission has favoured the early introduction of nationwide value-added tax regime to augment revenues of the states and further restructuring of their costly debt to reduce their interest burden.

"VAT is a desirable thing. We should have VAT at the earliest. It will improve revenues of the states," Planning Commission Deputy Chairman K C Pant told PTI in New Delhi.

Admitting that lack of political will had led to the delay in implementation of VAT, he said states had to see that VAT was implemented at all stages and revenues went up.

"We have to draw a lesson...even European Union, comprising so many nations, has a VAT regime. Canada too has VAT," he said, adding the advantages of VAT far outweigh the difficulties and benefit the entire financial system.

According to an estimate of the empowered committee of state finance ministers on VAT, the new tax system would lead to 20 per cent higher revenues for states.

Pant said the committee was working on VAT and hoped the matter would be actively taken up after the elections.

On the states' debt recast, he said the state committee was going into it and there was scope for further restructuring of high-cost state loans.

The Finance Commission was also studying the debt problem and may recommend a number of measures in its report to be released after July.

By March 2004, the total debt of states mounted to Rs 8,00,000 crore (Rs 8,000 billion), of which the amount owed to the Centre was about Rs 3,00,000 crore (Rs 3,000 billion).

Small savings account for Rs 1,33,000 crore (Rs 1,330 billion) while provident fund and other liabilities amount to another Rs 1,33,000 crore.

Loans taken by states from banks add up Rs 2,12,000 crore (Rs 2,120 billion).

Owing to the high interest burden, pension and salaries bill, the aggregate fiscal deficit of the states mounted to over 4.5 per cent of the GDP.