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Terms set for sales tax phase-out

New Delhi, July 15: The central sales tax will be phased out from October this year only if the states accept the Centre’s compensation package, the empowered committee on VAT said today.

The package is expected to make up for the revenue loss due to a reduction in the levy imposed on inter-state trade of goods.

“The empowered committee has decided to phase out CST from October 1, reducing the rate of tax from 4 to 3 per cent. This is, however, contingent upon a compensation package being worked out and accepted by both the finance ministry and the committee,” Asim Dasgupta, chairman of the committee, told reporters.

The Centre and states are still bargaining hard and it is not clear whether the deadline for even the diluted schedule of CST phase-out can be met.

The finance ministry has prepared a compensation package, which a committee of commissioners of commercial taxes will evaluate, Dasgupta said after a three-hour meeting of the panel.

He, however, refused to divulge the details of the package. He also ducked a question on whether the CST would be surely phased out from October 1.

States have asked for authority to impose VAT on imports, an increase in their share in devolution of service tax from 30.5 per cent to 50 per cent, bringing in 68 services under the state tax-net and imposition of VAT on sugar, textiles and tobacco from 2007-08 as a compensation package.

Besides, states have also asked for some budgetary support from the Centre.

Sources said the finance ministry is averse to budgetary support since states would ask for compensation in future even if their revenues increase due to VAT.

The states, which feel they have not been given their due share from the union tax kitty, are keen to raise more revenue so that they can take up their development schemes.

The finance ministry, on the other hand, is worried about fiscal deficit spinning out of control and is not ready to give tax concessions easily.

Kerala move

The VAT panel today played down Kerala’s decision to impose a 20 per cent tax on a host of luxury items in contravention of the agreed tax structure, saying the deviation from VAT rates among states was not significant and discussions were on to bring it down further.

The deviation was just 3 per cent, Dasgupta said and added that states are expected to reach a consensus on the issue soon.

“Deviation in lower and upper directions have been contained at 3 per cent. We have discussed the deviation. The discussion will continue and we hope to reach a consensus on the matter soon,” he said.

In absolute terms, he said deviation is just confined to 20 items against the total 703 VAT items.

Interestingly, the VAT panel will meet next month in Kerala itself, by when it will prepare a list of rate structures of various items.

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