Centre's CST sweeteners fail to lure state ST chiefs
August, 14th 2006
The Union finance ministrys compensation package to states as a sweetener for the proposed reduction of central sales tax (CST) rate from October 1, has not been agreed to by the state sales tax commissioners.
The commissioners have asked for transfer of 50% of the service tax proceeds to the states in perpetuity, sources said. This panel was set up by the empowered committee of state finance ministers to look into details of the Centres proposal.
The commissioners said the Centre had more administrative powers to levy and collect service tax instead of the states. The proposal to transfer certain types of taxes to states to administer was not a preferred option. But the finance ministry is keen that the states should tax certain services. It is also not in favour of giving 50% of the proceeds from the levy, in perpetuity to them. From October 1, the rate on CST is proposed to be cut to 3% from the current 4%.
Since the annual collection from the tax is about Rs 15,000 crore, which entirely accrue to the states, they are keen that a compensation formula should be worked out soon. The views of the sales tax committee would be forwarded to the empowered committee, which is likely to meet on August 19.
Dr Asim Das Gupta who chairs thecommittee had said after the last meeting that the states could begin with reducing the CST from to 3% from October 1 if the compensation package is agreed upon between states and Centre.
The issue of giving the states the right to collect service tax on selected services of intra-state nature is being discussed with the states in the context of working out a package for compensating the states for the revenue loss which will arise as a result of the proposed phasing out of the CST.
The issue is only that of the transfer of right to collect and appropriate the service tax proceeds from certain services and not for transfer of right to levy the tax. The right to levy service tax continues to remain with the central government as per the constitutional provisions.
The empowered committee of state finance ministers (EC) has proposed transfer of 124 services to the states (including 67 services presently being taxed by the central government) considered to be of intra-state nature by the EC.
The proposal is only for transfer of selected services of intra-state nature to the States. The proposal is under consideration of the government.