Panel Recommends Uniform Sales Tax Rates For All States

A working group on states resources for the ninth plan has recommended a floor rate of sales tax for all states. It has also projected a 52 per cent growth in the tax revenue of state governments assuming a GDP growth of 7 per cent and inflation of 8 per cent.

The group said states should agree on a uniform rate of sales tax and tax exemptions. It has suggested a three-tier rate structure of 4, 8 and 12 per cent. States should implement a floor of sales tax rate on the pattern of European Union.

The group headed by S R Hasim, member, Planning Commission, said state governments have granted too many exemptions which should be reduced. They should also stop granting new incentives for setting up industries although those that been already been granted cannot be withdrawn.

 

Profession tax has been abolished in some states while some others have not introduced it. This is a rich source of revenue. The rates should be raised up to the ceiling provided in the Constitution. States charge between Rs 72 and Rs 600 a year from a professional. It should be raised to Rs 2,500 a year.

The request of the states for central assistance to develop computer-related support systems for the implementation of a uniform value added tax deserves consideration, it said.

The group has recommended the taxing of a wide range of services like transport operators, private nursing homes, computer maintenance and consultancy, automobile repairs and services, rentals from leasing, works contract and advertising.

These taxes can be levied without any amendment to the Central Sales Tax Act. Centre should legislate to allow states to levy, collect and retain these taxes.

Motor vehicles and passenger & goods taxes, if implemented properly, can yield substantial amount of revenue. But the implementation is so poor that a large number of vehicle owners escape paying this form of tax. Many states prefer to charge compounded levy for several years at a time.

Most states charge very high rates of stamp duty and registration fees. But they face problems of valuation and complex procedures with the result that there is large scale evasion. They should opt for progressive structures with low rates for properties below Rs 1 lakh and slabs of 2 to 10 per cent for properties of higher value.

There is also need for delinking registration and collection of stamp duty through amendments in the Indian Registration Act and rationalisation of duty structure which can lead to larger resource mobilisation.

Cable operators should be taxed in all states. Only a few states tax them at present. Better compliance needed on entertainment tax on areas like cinema and theatrical performances would also yield good revenue.

The group said the Union government should immediately levy tax on the sale and purchase of newspapers and advertisements therein as envisaged in article 269(f).

The report points out that irrigation charges are too low and arrears are allowed to be accumulated which are later written off. There is need for frequent revision of water rates and effective collection mechanism. Even a 10 per cent increase will result in additional revenue of Rs 150 crore.

It suggested implementation of the Sarkaria Commission recommendation of reviewing the royalty rates on minerals, petroleum and natural gas. Since most of the minerals are located in backward states, the revision will help them immensely.