The government on Monday said the tax revenue of VAT implementing states has shown an increase of 27.1 per cent during the first quarter of this fiscal year-on-year.

This is quite remarkable and indicates that the VAT system has started stabilising and yielding the desired results, adivisor to the Union Finance Minister Parthasarathi Shome said.

The tax revenue of the VAT implementing states showed around 13.8 per cent increase in 2005-06 over tax revenue of 2004-05, which is higher than the compound annual growth rate of sales tax revenues of these states for last five years, he said in statement.

Pointing out that the Centre has a role of facilitator in the VAT scheme of things, Shome said the empowered committee of state finance ministers is in the process of persuading the remaining states and union territories to introduce VAT.

Only Uttar Pradesh, Tamil Nadu and Pondicherry have not implemented VAT so far. However, Tamil Nadu has said it would implement VAT from January 1, 2007.

The Empowered Committee is slated to meet on August 24 in New Delhi. Shome also said the issue of compensating states for revenue loss on account of proposed cut in Central Sales tax is presently being deliberated upon.

As a compensation package, the Empowered Committee has asked the Centre to authorise the states to impose VAT on imports, increase their share in devolution of service tax from 30.5 per cent to 50 per cent, bring in 68 services under the state tax-net and allow them to impose VAT on sugar, textiles and tobacco.