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The States apprehend that the Centre ignoring their views on the negative list for imposition of service tax may increase the burden on the consumer.
They are also disappointed with the Budget as nothing has been said on the compensation on account of reduction in Central Sales Tax (CST).
Mr Sushil Kumar Modi, Chairman of the Empowered Committee of States' Finance Minister, told Business Line , “We submitted our views on negative list with an aim to end double taxation by the Centre as well as the States. However, we are disappointed to see that barring 3-4 things, nothing has been included from our view.”
What does this mean? Services such as entertainment will attract service tax from the Centre while the States or local bodies will levy their own tax. “This is nothing but double taxation which may also end in litigation between the Centre and the States,” Mr Modi, who is also the Deputy Chief Minister of Bihar, said.
The States are also fuming over the absence of any reference to compensation to States on account of reduction of Central Sales Tax. “Alternatively the CST may be restored to four per cent. The Budget has not mentioned anything,” Mr Modi said.
Central Sales Tax is levied on the goods in the inter-State trade. As a precursor to the introduction of the GST, it was decided to phase out the CST during a period of three years (2006-07, 2007-08, and 2008-09) with an assumption of GST to be introduced from April 1, 2010. It was also decided that compensation will be given on account of reduction of CST.
Accordingly, the Centre decided to give Rs 6,393.94 crore as CST compensation for 20101-11 as per the guidelines and discussions between the Union Government and the States.
However, Mr Modi argued that the Empowered Committee has never agreed for compensation after deducting assumed revenue on account of increase of the lower Value Added Tax (VAT) rate from four per cent to five per cent.
Mr Modi said that reduction of CST was linked to introduction of the Goods and Services Tax (GST), but now the Budget is not giving any fresh date for the introduction. Though some preliminary work in the regard has been mentioned, but this does not mean the Government has fresh date in its mind, he said.
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