The Hindu Business Line : Central Sales Tax regime to stay till 2005-06

This was an important decision taken at the Conference of State Finance Ministers here on Tuesday. In the original VAT changeover plan, CST was to be phased out with the introduction of VAT, with the former Finance Minister, Mr Jaswant Singh, even proposing the halving of the rate to 2 per cent in his 2003-04 Union Budget.

And in order to offset the losses from the CST duty cut, the Additional Duties of Excise (Goods of Special Importance) Act, 1957 was sought to be amended to allow States to levy sales tax on sugar, textile and tobacco products.

Currently, the Centre imposes AED on these items and transfers an additional 1.5 per cent of its tax proceeds to States in return for their not charging sales tax on them. Under Mr Singh's proposal, the States were to be given powers to levy sales tax on the three commodities, even while they would continue to obtain the additional 1.5 per cent devolution from Central taxes.

But none of these proposals finally saw the light of the day. Today's decision merely reinforces the status quo till 2005-06. The 4 per cent CST rate will remain till a new Empowered Panel of State Finance Ministers re-work the modalities for phase-out. Thus, VAT will take off from April 2005, even as the current CST regime would stay.

Under VAT, companies can avail themselves of credit on the sales tax paid on inputs, so that their effective tax liability is confined to the `value added' by them in course of manufacture. This requires their being able to take credit on the sales tax paid on inputs sourced from within the State and also for the CST levied on inputs sourced from another State.

While the States are not seen averse to providing sales tax credit, they are, however, not keen to provide a similar set off on inputs sourced from outside, since the CST proceeds accrue entirely to the exporting State. And neither is the exporting State amenable to doing away with the CST given the revenue implications. During 2003-04, the budgeted CST revenues to States amounted to Rs 12,316.08 crore, over and above sales tax collections of Rs 77,745.07 crore.