Centre and states to sort out phasing out of CST

New Delhi, May 8: The Centre and states will sort out the issue of phasing out of the Central Sales Tax (CST) only after it's revenue implications, which ammount to Rs 18,000 crore are completely resolved, said Advisor to the Finance Minister, Dr Parthasarhi Shome.

Releasing a study jointly undertaken by ASSOCHAM and KPMG, on 'Implementation of State VAT -- Early Experiences', Dr Parthasarthi Shome said that with the first year of VAT in place, the centre has compensated the state's loss on account of VAT implementation to the tune of Rs 3000 crore by March 31, 2006.

As regards CST phasing out, Dr Shome categorically stated that until the centre and states reached an agreement on resolving the Rs 18,000 crore revenue issue, it would be difficult to state by when the CST would be reduced and subsequently phased out.

He, however, hoped that within the stipulated time period as given by the Finance Minister in concurrence with the Empowered Committee on VAT, the CST phasing out would be possible as states like Uttar Pradesh and Tamil Nadu and the Union Territory of Pondicherry are expected to implement VAT shortly.

The ASSOCHAM-KPMG Study, however, has called for the introduction of the Goods and Service tax earlier than 2010, as envisaged by the Finance Minister. The study has also sought consolidation of the Goods and Service Tax at all levels of the government and merged them with goods tax or service tax.

It has been pointed out that now the challenge is to broadbase the tax system and extend it to the trade sector as GST is in operation at the Central level at present.

Speaking on the occasion, ASSOCHAM President Anil K Agarwal said that national level GST should cover manufacturing and service sectors while state level GST would take care of trading and service sectors.

The study further says that tax on services is currently imposed through the Finance Act, 1994 and it encompasses a wide variety of services. The next step therefore is to empower states to get revenue from taxation of services so that there could be GST at the state level.

''The apparent dilemma of the Central Government is that should the states be given authority to collect and retain tax on all services or should it be only on identified services,'' says the study.

The average rate of sales tax for pharmaceutical products, for the country as a whole, was about 7.7 per cent. The state VAT rate for these products is 4 per cent. Similarly, for fast moving consumer goods, it was in excess of 15 per cent and State VAT rate was 12.5 per cent. As a result, the distributors refused to take deliveries and started de-stocking from January 2005 particularly, since there was no clarity as to the quantum of input tax credit available on transition stocks.

UNI