Medicines -- including life-saving drugs -- are likely to attract a 4 per cent value-added tax, whose implementation hangs fire for various reasons.

In a development that is likely to displease consumers, life saving drugs may not to be exempted from VAT as the Centre has expressed reservations over this, citing huge revenue compensation to states on this account.

"It was decided that drugs of all kinds, including life-saving medicines, will be taxed at a uniform 4 per cent VAT. The rate on life-saving drugs will, however, be reviewed by the empowered committee on value-added tax after one year," committee sources said after a meeting in New Delhi on Monday.

VAT panel chairman Asim Dasgupta declined to comment saying the decision would be announced only after his meeting with Finance Minister Jaswant Singh on Tuesday.

The committee was considering either exemption or a lower rate of VAT for life-saving drugs, while keeping other medicines at the 4 per cent slab.

The panel was expected to draw up a list of life-saving drugs for the exemption. But there was difference of opinion among states and the Centre on the definition of such drugs.

The Union finance ministry has argued that if the list of exempted items was expanded, then the Centre would end up paying a higher compensation for revenue loss of states, which in turn would bloat its fiscal deficit.

The Crisis Over VAT