Centre defers cut in CST rate to 1% from April

The Centre has put on hold the reduction in the Central Sales Tax (CST) rate from 2 percent to 1 percent from April 1, 2009 as per the CST phase out plan and allowed collection of CST at the rate of 2 percent for the time being.

Though the exact reason for this is not known, the Empowered Committee (EC) of the state finance ministers had recommended that CST should not be brought down from 2 percent to 1 percent.

Basing its recommendation on the current economic situation, the EC suggested that the CST rate can be brought down to 0 percent from the year in which the Goods and Service Tax (GST) is proposed to be introduced across the country.

Sources said, in case of reduction of the CST rate from 2 to 1 percent, the proportionate compensation will have to be paid by the Centre for which issue of notifications will be required. Since the model code of conduct is currently in force for the ensuing general elections in the country, the Centre may not be able to bring out the required notification till the election process is complete, sources said.

It may be noted, the Empowered Committee had earlier decided to reduce the CST rate from 2 percent to 1 percent with effect from 1 April 2009 and from 1 percent to zero from 1 April 2010, coinciding with the proposed introduction of the GST.

Meanwhile, the states have expressed their dissatisfaction with the Government of India (GoI) for not releasing the CST compensation to them as per the claims submitted by the states during 2008-09.

The states argued, their ways and means position was hit by the phasing out of the CST from 3 percent to 2 percent during 2008-09.For instance, about Rs 900 crore proportionate compensation in lieu of loss the CST collections in Orissa was due by March. However, the amount is yet to be released to the state.

In this context, the states are likely to raise the issue of release of compensation for loss of CST in the next empowered committee meeting scheduled to be held 20th of this month.

Unless the Centre goes by its commitment, the states may not agree for implementation of the proposed GST in the near future. This may be a road block on the way of implementation of the GST in the country, sources said. Besides, the provisions made in the union budget 2008-09 for devolution of Central taxes were reduced in the revised estimate (RE) for 2008-09. Accordingly, 3 doses, out of the total 14 doses have not been released to Orissa.