States seek Rs 10k-cr in CST damage

Written by Surabhi Rastogi | Surabhi | New Delhi, Jan 29 | Updated: Jan 30 2008, 05:32am hrs
State governments have decided to ask for Rs 10,000 crore in budgetary support for 2008-09 from the Centre as compensation for the further reduction in central sales tax. This would be a major jump from the Rs 2,500-crore grant-in-aid provided by the Centre this fiscal as compensation towards the 1% cut in the tax.

States have also decided not to accept the Centres proposal to increase the value added tax on intermediate products by 1%. The Centre wants state governments to increase the Vat rate form 4% to 5%.

The decision comes soon after states expressed concern over revenue losses to the tune of Rs 13,000 crore following a 1% reduction in CST from 3% in 2008-09.

States are of the view that they would get around Rs 3,000 crore from levying service tax on 33 services transferred by the Centre. The rest of the compensation amounting to about Rs 10,000 crore should be provided by the Centre as budgetary support and not through any hike in taxes which would affect the public. The other alternative being discussed was to levy Vat on imports, which has also been refused by states.

The decision comes following the meeting of the empowered committee of state finance ministers on Monday, sources told FE. The view is likely to be communicated to the finance ministry in the next few days.

States have also agreed to bring 5 of the 44 new services allotted to them in service tax net from next fiscal, sources said. These include services provided by private educational institutions, unaided health institutions and hospitals, except below poverty line cases, amusement parks and rotaries who certify legal documents. In 2007-8, when the CST phaseout began, the Centre had provided as compensation to states revenue proceeds from 33 services, 44 new services for taxation, removed additional excise duty from tobacco and some budgetary support. In 2007-08, losses from the 1% cut in CST is expected to amount to about Rs 6,000 crore.