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States reluctant to levy tax on new services
May, 08th 2007
The Union Government's recommendation to the States to collect tax on 44 new services to make up for the loss due to reduction of central sales tax (CST) from four to three per cent have failed to cut ice with the States.

"Those services are minor in nature and they won't compensate our losses," said Mr Konathala Ramakrishna, Minister for Commercial Taxes.

Addressing a press conference here, he said Andhra Pradesh received Rs 1,600 crore in 2006-07 in the form of CST. "We expect a loss of Rs 400 crore in 2007-08 because of the reduction of CST rate from four to three per cent.

Mr Ramakrishna, however, evaded questions whether the "sensitive" nature of the services included in the new list made the States shy away from the proposal.

COMPENSATION

The Union Government had agreed to compensate losses the States faced, by taking into account the average of last three years' revenues. "If it falls below the average, we will get it reimbursed," he said.

Under the Centre's devolution of CST accruals, States have already got 30.5 per cent, with the former wresting the remaining revenues. As part of the plan to phase out CST, the Centre would give some more to States, depending on the loss they might face in the process.

The compensation formula also included the right to levy tax for the States on tobacco products at 12.5 per cent from April 1.

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