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K.R. Srivats

To discuss CST compensation package

New Delhi , Jan. 2

The Finance Minister, Mr P. Chidambaram, is expected to hold crucial talks with the Chairman of the Empowered Committee of State Finance Ministers on Value Added Tax (VAT), Dr Asim Dasgupta, on Wednesday, to arrive at a consensus on the compensation package for central sales tax (CST) phase-out from April 1.

Prior to the meeting with the Union Finance Minister, the State Finance Ministers are to meet here under the aegis of the VAT panel to discuss the CST compensation package.

States' stand

The States have made it clear that full compensation from the Centre was a precondition for CST phase-out. They have pointed out to the Centre that removal of CST would lead to permanent revenue loss for the States and therefore the need for compensation. The Centre is keen that the proposed package comprise both monetary as well as non-monetary measures. If the Centre and the States agree on the compensation package, then the ceiling rate on CST is likely to be lowered from 4 per cent to 3 per cent with effect from April 1.

Currently, the States collect and retain the entire proceeds of CST. In 2006-07, CST collections are expected to touch about Rs 21,000 crore.

Besides VAT on imports and the power to tax certain services, the States are also keen to get the power to levy VAT on certain additional excise duty items like tobacco. .

Meanwhile, the industry wants the CST to be removed at the earliest, as this tax was inconsistent with the destination-based VAT system. So far, 31 States and Union Territories have implemented State-level VAT. Tamil Nadu implemented VAT from January 1.

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