States want Central sales tax to continue with GST
Vrishti Beniwal / New Delhi Jul 27, 2010, 00:55 IST
Seek it in the form of a transaction fee levied at the rate of 1-2 per cent.
After the Centre recently made some headway on Goods and Services Tax (GST), states’ insistence on continuing with the Central Sales Tax (CST) in the new tax regime may disrupt the talks. Most of the states have asked the government to continue levying CST in the first few years of GST.
“There is a strong plea from states to continue with CST. They want it in the form of a transaction fee levied at the rate of 1-2 per cent. We will have to see whether it is feasible,” an official in the finance ministry who did not want to be named told Business Standard.
The states believed keeping CST would provide them some comfort in the new regime, the official said, adding the compensation from the Centre would be less if CST was not done away with next year.
CST is levied on the inter-state movement of goods and was cut from 4 per cent to 3 per cent from April 1, 2007, and then to 2 per cent in 2008. As part of the implementation of value-added tax (VAT) it was to be reduced by 1 per cent every year and made nil by April 2011, but it has not been cut further.
TAX TANGLE
* Central Sales Tax, levied on the inter-state movement of goods, was cut from 4% to 3% from April 1, 2007, and then to 2% in 2008
* Though it is called the Central Sales Tax, the tax collected under the CST Act is kept by the state from which the movement of goods commences
* As CST is an origin-based tax, continuing with it may create problems because GST is a destination-based tax
* While the total compensation package for the states worked out to Rs 14,000 crore for 2009-10, Rs 5,000 crore will be paid out of the total transfer of proceeds from tax on 33 services to the states
Though it is called the Central Sales Tax, the tax collected under the CST Act is kept by the state from which the movement of goods commences. This is provided in Article 269(1)(g) of the Constitution. As CST is an origin-based tax, continuing with it may create problems because GST is a destination-based tax.
A state finance minister confirmed there was a demand to continue with CST for the first few years to give some comfort to the states in terms of protecting revenue and fiscal autonomy.
“The entire idea of GST was based on the premise of simplification and moving towards a single rate. Even if CST is levied at a nominal rate of 0.1 per cent, it will defeat the purpose. It will give parallel power to states and some states may use it to increase rates,” Deloitte Senior Director Atul Gupta said.
At the meeting with the empowered committee of state finance ministers on July 21, Finance Minister Pranab Mukherjee had said the Centre would fully compensate the states for any revenue loss on account of CST reduction in 2009-10 and release the balance outstanding amount immediately.
“I am now waiting for the empowered committee’s recommendations on the CST compensation formula for the year 2010-11. I am confident that this decision would reaffirm our resolve to engage constructively with difficult issues and find mutually-acceptable solutions,” Mukherjee said.
While the total compensation package for the states worked out to Rs 14,000 crore for 2009-10, Rs 5,000 crore will be paid out of the total transfer of proceeds from tax on 33 services to the states. This leaves Rs 9,000 crore to be paid in compensation to the states.
CST rate was reduced from 4 % to 3 %, and then to 2 %, in 2007 and 2008, respectively. This rate would be applicable up to March 31, 2011. The proposed GST regime, replacing the CST Act, 1956, is convoluted in respect of inter-state transactions. Instead, it is suggested that all inter-state movement of goods (i.e. including branch transfers and consignment sales) be made SGST-free and that the amount of SGST paid by the importing dealers on their intra-state sales of goods, which were imported by them from other state(s), be split up into: (i) on the imported value and (ii) on the value added. While retaining the latter amount, the importing state would directly make over to the exporting state(s) the former amount.
Content Guide
After the Centre recently made some headway on Goods and Services Tax (GST), states’ insistence on continuing with the Central Sales Tax (CST) in the new tax regime may disrupt the talks. Most of the states have asked the government to continue levying CST in the first few years of GST.
