The Hindu Business Line : CST phase-out hinges on operations of tax info exchange: Shome

THE Centre has hinted that the elimination of central sales tax (CST) under the proposed value added tax (VAT) regime hinged on the complete implementation of the taxation information exchange system that is being put in place to give a comprehensive picture of inter-State trade of all commodities.

The Empowered Committee of State Finance Ministers on VAT has already commissioned a consortium led by ICICI Infotech to implement the

National Tax Information Exchange System (TINXSYS) for tracking inter-State transactions in the proposed VAT regime.

States are now collecting Rs 15,000 crore every year from CST. At least nine States are expected to participate in the pilot phase of TINXSYS project that is likely to go live from April 1 this year.

"Even if the larger states agree for removal of CST, the information exchange network has to be in place before one can think of completely phasing out CST," Dr Parthasarathy Shome, Advisor to the Union Finance Minister, said at a Assocham-PHDCCI National Conference on `State VAT for a Common Indian Market— Issues and Challenges'.

As of now, the Centre and the States have agreed that the four per cent CST would continue in the first year of VAT implementation (2005-06), but would be eventually phased out in a timeframe to be decided by the Empowered Committee of State Finance Ministers on VAT.

Dr Shome said that the desire of the States to eventually eliminate CST is a good signal that India is keen to move towards a destination-based VAT system. He highlighted that the current preparations are aimed at initially putting in place an origin-based VAT regime.

The Advisor also held that the proposed VAT regime would not be "inflationary" if all the persons in the VAT chain pass on the input tax credit to the next stage. He also said that every State would set up VAT monitoring cells to follow up both revenue side impact and price impact.

He also reiterated the empowered committee's position that the penal provisions in the VAT laws would not be more stringent than those in the existing sales tax laws.

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