Kerala   

CST compensation formula drawn up

Asim Dasgupta, Chairman, Empowered Committee of State Finance Ministers.

THIRUVANANTHAPURAM: The Empowered Committee of State Finance Ministers, which met at Kovalam on Monday, drew up a formula for compensating the revenue loss to States resulting from abolition of the Central Sales Tax (CST).

This will pave way for immediate reduction of the CST from three to two per cent in accordance with an earlier decision to phase out the CST. Though the rate was brought down from four to three per cent last year, the reduction proposed this year had been kept in abeyance pending agreement on compensating the revenue loss.

Chairman of the committee Asim Dasgupta told mediapersons that the formula provided for cash compensation from the Centre to the States based on current assessment. Some States would be allowed to tax items like tobacco to make up for the losses. However, enhancement of value added tax (VAT) rates by the States to make up for the losses had not been considered. Enhancement of the VAT rates at this stage would cause instability as several States were in the initial years of implementation of VAT.

The formula arrived at by the committee, he said, will be communicated to the Union Finance Minister for early implementation.

Dr. Dasgupta said the Committee had submitted a model and road map for implementation of the goods and services tax (GST) proposed for introduction in 2010-11 to the Union Finance Ministry on April 13. The final version would be prepared on receipt of response from the Ministry. The GST will be a simple and unified system (integrating Central Sales Tax, excise duties and VAT). Some items would be kept out of the goods and services tax to meet regional requirements.

He said a harmonised system of classification of commodities was proposed to be introduced with GST. The Centre for Taxation Studies had prepared the report proposing a harmonised system of nomenclature. The committee had accepted the report in principle. Some deviations from the system might be necessary at the State level because of divergence in rates and incentives on commodities. The committee would examine how to handle the deviations at its next meeting.

Finance Ministers from nine States and secretaries and commissioners in charge of finance and tax from all States attended the committee meeting.

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