Govt promised to make up loss in state revenue due to CST cut

NEW DELHI: VAT’s the matter? The FM’s decision to rollback VAT has clearly caught states on the backfoot. It was pretty clear that VAT would be in force in a truncated version. This is largely because of the refusal of the northern states — Delhi, UP, Rajasthan and Punjab — to join the club.
Just two days ago, the Chairman of the Empowered Committee on VAT announced three important decisions to provide relief to traders and industrial units. These included raising the threshold limit for entry into VAT from Rs 25 lakh to Rs 40 lakh, continuation of past incentives (exemptions/remissions/deferement) promised to industrial units and a cut in the VAT rate on medicines from 12.5% to 4%.
Implementation of these decisions would have meant a more revenue losses for the states which, in turn, could claim a higher compensation from the Centre. The Centre had promised 100% compensation to states on losses arising out of transition to VAT and a full compensation for the cut in CST rate.
With the Centre making its stand on VAT pretty clear, the proposed cut in CST rate from 4% to 2% announced in the Union Budget will be put on hold. So would the amendment to the Additional Duties of Excise (Goods of Special Importance) Act 1957. An amendment to this legislation is required to enable states levy sales tax on textiles, sugar and tobacco products at a rate exceeding 4%.
The Centre would not be in a hurry through the Constitutional amendment to enable states to levy service tax.