It was widely expected that the promised reduction of the Central Sales Tax (CST) rate to 2 per cent would be announced in the Budget.
In spite of the repeated assertions that continuance of CST is incompatible with VAT, the Finance Minister has let down trade and industry and the consumers at large by not announcing the reduction.
Road to GST
The demand of States for compensation for revenue loss on the initial reduction to 2 per cent and on the ultimate phase-out is not a new factor and the Government had, over a year since implementation of VAT, to find an acceptable solution. The failure to iron out the issue for over a year casts doubts about the viability of April 2010 as the date for introduction of a national level Goods and Service Tax (GST) Act.
The Finance Minister's statement that the loss of revenue to the States may be compensated through monetary and non-monetary measures appears to sidestep the issue.
While the empowered committee is to be complimented for the successful implementation of VAT, in the present era of transparency in public policy and administration, it would be appropriate if the Empowered Committee as well as the Central Government throws open for discussion their proposal on the monetary and non-monetary compensation contemplated, so that the stakeholders have an opportunity to discuss, debate and generate public opinion on modalities of the phase-out of CST and the ultimate transition to a national GST.
The only ray of hope that the promised reduction of CST rate to 2 per cent may happen during the course of the year is the statement that once the Empowered Committee and the Government reach an agreement, the Finance Minister would return to the House with firm proposals, including legislative changes and a supplementary demand.
(The author, a Madurai-based Chartered Accountant, is a VAT and service tax consultant. )