Tax reforms back on track, CST cut to 2% from June
Ending uncertainty over a major tax reform initiative, the central government on Friday notified reduction in central sales tax (CST) to 2% from June 1 as compared to the current 3%.
By TNN |
NEW DELHI: Ending uncertainty over a major tax reform initiative, the central government on Friday notified reduction in central sales tax (CST) to 2% from June 1 as compared to the current 3%.
���The central government and the empowered committee of state finance ministers have further agreed that the compensation for revenue loss to the states in any year arising from the lowering of CST will be limited to the proportionate loss based on the actual collection of CST in the relevant year, ��� a finance ministry statement said. Elimination of CST is crucial to implementation of unified goods and service tax from April 1, 2010.
It is, however, not clear if the centre and states have reached an agreement on raising the floor rate of VAT from 4% to 5% in the current fiscal, which was a part of the compensation package. The hike would impact goods like edible oils, bread, intermediate goods footwear which are now under the general rate.
While both sides have agreed on reduction in CST to 2%, certain elements of the compensation package are yet to be ironed out, sources said.
CST, which was reduced from 4% to 3% on April 1, 2007, was to be slashed to 2% from April 1, 2008. The reduction could not be carried out with both the centre and the state governments failing to agree on the compensation package. With the reduction in CST rate from 3% to 2%, the states are estimated to lose Rs 12,000 crore to Rs 13,000 crore in revenues.
States want the centre to compensate this loss in full. Though, the Centre is agreeable in-principle to this, differences cropped up on the mechanism for compensation. Differences had also sprung up on account of state governments demanding some tweaking in the formula agreed in early 2007.
The compensation package for phasing out CST ������ which began from April 1, 2007 ������ includes transfer of power to levy service tax on some services, removal of additional excise duty on tobacco products and textiles, VAT on imports, abolition of Form D, budgetary support and hike in floor rate of VAT.
The Centre has removed additional excise duty from tobacco, provided for budgetary support and has already begun transfer of revenues from 33 existing services to states. However, it is yet to bring the 44 new services under tax net.
���The central government and the empowered committee of state finance ministers have further agreed that the compensation for revenue loss to the states in any year arising from the lowering of CST will be limited to the proportionate loss based on the actual collection of CST in the relevant year, ��� a finance ministry statement said. Elimination of CST is crucial to implementation of unified goods and service tax from April 1, 2010.
It is, however, not clear if the centre and states have reached an agreement on raising the floor rate of VAT from 4% to 5% in the current fiscal, which was a part of the compensation package. The hike would impact goods like edible oils, bread, intermediate goods footwear which are now under the general rate.
While both sides have agreed on reduction in CST to 2%, certain elements of the compensation package are yet to be ironed out, sources said.
CST, which was reduced from 4% to 3% on April 1, 2007, was to be slashed to 2% from April 1, 2008. The reduction could not be carried out with both the centre and the state governments failing to agree on the compensation package. With the reduction in CST rate from 3% to 2%, the states are estimated to lose Rs 12,000 crore to Rs 13,000 crore in revenues.
States want the centre to compensate this loss in full. Though, the Centre is agreeable in-principle to this, differences cropped up on the mechanism for compensation. Differences had also sprung up on account of state governments demanding some tweaking in the formula agreed in early 2007.
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The compensation package for phasing out CST ������ which began from April 1, 2007 ������ includes transfer of power to levy service tax on some services, removal of additional excise duty on tobacco products and textiles, VAT on imports, abolition of Form D, budgetary support and hike in floor rate of VAT.
The Centre has removed additional excise duty from tobacco, provided for budgetary support and has already begun transfer of revenues from 33 existing services to states. However, it is yet to bring the 44 new services under tax net.
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