In a fresh setback to the phase-out of the central sales tax (CST), the Centre and states have once again been unable to work out an adequate and agreeable compensation package for the planned 1% cut in the tax. The reduction in the CST rate was originally slated to be notified from April 1, 2008, as had been announced in this year?s Budget and would have brought it down from 3% to 2%.
The stalemate has come up despite the empowered committee in its meeting earlier this month re-iterating its promise to reduce the rate of CST from 3% to 2%. Sources close to the development said the phase out process of the tax may now in fact get temporarily postponed, if a compromise is not worked out soon enough.
?While this would not be an ideal situation, and we hope that things get back on track, we can not completely rule out a delay in the phase out of CST,? an official source said.
The Centre has once again asked state governments to rethink their decision to not increase the value added tax (Vat) on intermediate goods to 5% and also to introduce Vat on textiles, sources said. States on the other hand have pressed for higher budgetary support, as hiking the Vat rate in times of high inflation would not be a good move.
To sort out these issues, chairman of the empowered committee of state finance ministers Asim Dasgupta is now scheduled to meet finance minister P Chidambaram later during the week.
?The two will try to discuss a final compensation package that will not only keep the states satisfied but will also ensure that the Centre does not have to pay out too much,? the official said.
After the last meeting of the empowered committee, it had seemed that all pending issues had been sorted out and the rate cut would be notified soon. It was proposed that the Centre would provide compensation to states on the basis on the growth of trade and actual losses and not trends in tax collections.
States expect to lose about Rs 6,000 crore in 2008-09 from the 1% reduction in the tax. They had earlier demanded monetary support of about Rs 13,000 crore based on the trends in CST collection.