CST phase-out put off to next fiscal The government is set to defer the start of the central sales tax (CST) phase-out from October 1, 2006 to April 1, 2007, according to official sources. This is because the finance ministry and state governments are yet to iron out their differences over the question of compensating states for the resultant revenue loss. The CST, a 4% tax on inter-state transactions administered under a central Act, fetched states a tidy sum of Rs 18,500 crore in 2005-06. The plan was to cut The CST from 4% to 3% from October 1. This would have cost states over Rs 2,500 crore. A further cut to 2% beginning April 1 next year will cost them another Rs 12,000 crore. Revenue from the CST grows at a compounded annual growth rate of 15%. A finance ministry official told FE that though the Start of the phase-out was being deferred, the deadline for eliminating the CST by April 1, 2009 would be met. “We will have to stick to the plan to bring in the goods and services tax (GST) by April 1, 2010,” said the official. He indicated halving the CST from April 1 next year, followed by a further reduction to 1% in 2008-09 and a complete removal of the tax in 2009-10. States are learnt to have told the finance ministry that a phased increase in value-added tax (Vat) rates, starting next fiscal, which it had proposed, could not be considered a component of the CST compensation package. According to states, any hike in their Vat rates should be seen as an additional resource mobilisation effort at the state level, separate from the CST package. An empowered committee of state finance ministers on Vat has already informed North Block of this stance. Finance ministry officials said the Centre was clear that the entire CST compensation to states could not be through direct or indirect transfers of its resources (to states). The CST is inconsistent with the state Vat, which is a multi-point tax on value-addition, with an input tax credit facility. Under the CST Act, the tax is collected by the Centre and disbursed to states. The Centre had offered to compensate states for terminating the CST through a combination of monetary and non-monetary measures. It offered states 33 of the 99 services currently being taxed by the Centre and an additional 44 services such as legal, educational and medical. States, on the other hand, demanded 50% share in (potential) service tax proceeds. http://www.financialexpress.com/fe_full_story.php?content_id=139643 Back to News