With the compensation package for states yet to be finalised, the phase-out process of central sales tax (CST) may go off track. The reduction in the rate of central sales tax (CST) from 3% to 2% may now be delayed from April 1 this fiscal, sources said, as the Centre and state governments are yet to finalise a compensation package for further 1% cut in the tax rate.
?If the state governments have a meeting with the Union finance ministry by next week and finalise the compensation, then only will the rate cut be notified from April 1,? a government source said. The date for notification will otherwise get pushed to sometime later in the year after the package is finalised, he added.
The states and Centre have so far been unable to fix a suitable reimbursement scheme for the 1% cut in CST in 2008-09, revenue losses from which are pegged at about Rs 13,000 crore. After the last meeting of the empowered committee of state finance ministers in late January, state governments had decided not to accept the Centre?s proposal to increase the value added tax on intermediate products by 1%. The Centre wants state governments to increase the rate of the value added tax (Vat) from 4% to 5%.
Instead they had demanded a higher monetary compensation of about Rs 10,000 crore from the Centre along with the power to tax some new services, which would mop up another Rs 3,000 crore.
Sources however said the Union finance ministry is not very keen on providing such a high cash component for the losses and is likely to bargain for a monetary compensation of only about Rs 5,000 crore.
Finance minister P Chidambaram in the Budget for 2008-09 had announced the decision to reduce the CST rate to 2% from April 1, 2008. ?Consultations are underway on the compensation for losses, if any, and once agreement is reached the new rate will be notified,? he had said.
State governments have so far been busy with their Budget sessions and unable to come to New Delhi for a meeting.