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Maharashtra received about Rs 1,800 crore from Central Sales Tax, Tamil Nadu and Gujarat about Rs 1,000 crore each, West Bengal about Rs 800 crore and Andhra Pradesh about Rs 700 crore. The total CST collection in the country is about Rs 15,000 crore.

CHENNAI, Feb. 14

THE State Governments have asked the Centre to devise a mechanism for compensating the States "permanently" for the loss of revenue after abolition of Central Sales Tax, consequent to the introduction of Value Added Tax (VAT).

The States' plea is based on the logic that abolition of CST would mean not just loss of revenue, but removal of a whole revenue source, Mr Shaktikanta Das, Secretary, Commercial Taxes Department, Tamil Nadu Government, said here on Friday.

Speaking at a seminar on `India as one Common Market', organised by the Associated Chambers of Commerce & Industry of India (Assocham), Mr Das said that CST was a major revenue source for many States, including Tamil Nadu.

He pointed out that Maharashtra received about Rs 1,800 crore from CST, Tamil Nadu and Gujarat about Rs 1,000 crore each, West Bengal about Rs 800 crore and Andhra Pradesh about Rs 700 crore. The total CST collection in the country is about Rs 15,000 crore.

He said the `empowered committee' of State finance ministers had requested the Centre not to abolish CST until the VAT system stabilises. Noting that the Government of India had agreed to reimburse the States for reduction in CST up to 100 per cent in the first year (after introduction of VAT), 75 per cent in the second and 50 per cent in the third, Mr Das said that the States had asked the Centre to increase the percentages. (It is proposed that the CST would be brought down from 4 per cent to one per cent, after VAT is introduced.)

He said the committee had also agreed on a revenue neutral VAT rate of 12.5 per cent.

Mr Das said the States had also asked the Centre to allow States to bring "cream services" such as banking and telecom under VAT, as "otherwise we will be left with services like beauty parlours".

Other speakers including Mr R.K. Somany, President, Assocham, and Mr Sanjay Bhatia, Co-Chairman, Assocham Expert Committee on Common Market, called for a `National Trade Policy', that would make the whole country `one common market'. Both called for a speedy implementation of a nation-wide VAT system.

Mr Bhatia observed that there was a plethora of Central and State legislations governing internal trade in India, numbering about 400. Many of them have outlived their utility and appear to be arbitrary, he said.

"What is more perplexing is the diversity of controls exercised by multiple authorities at different levels, lack of uniformity in standards laid down by different authorities," Mr Bhatia observed.

For example, he said, the under the provisions of the Essential Commodities Act, 1955, "various business activities such as storage, transportation, distribution or pricing of products may be subject to different controls and scrutiny by authorities," leading to increase in transportation costs.

Mr Sridhar Venkiteswaran, Vice-President, Avalon Consulting, said the introduction of VAT would lead to rationalisation of logistics, resulting in a large saving.

Companies may have to close down branch offices and open new warehouses, and redistribution centres. He estimated that the savings could be as high as about 0.5 per cent of GDP.

He said that contrary to what some States believed, their revenues would go up after VAT, as more transactions would be brought under the tax net.

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