INDIA BUSINESS WORLD - FEBRUARY 2007
The Month that was ...

CST IN FADEOUT LANE, CUT TO 3% FROM APRIL

THE Union Cabinet gave its approval for initiating the process of phasing out of central sales tax (CST) with an initial reduction of 1% in the CST rate from 4% to 3% effective April 1. The Taxation Laws Amendment Bill, 2007, will be introduced in the coming session of Parliament to incorporate changes in the Central Sales Tax Act, 1956.

The Cabinet is also understood to have cleared the compensation package for revenue losses that will be incurred by the states on account of the phaseout. The compensation package includes transfer of revenues from 44 old and 33 new services, right to impose value-added tax on imports and certain tobacco and tobacco products besides budgetary support. The Additional Duties of Excise Act, 1957, will be amended to incorporate some of the changes.

The CST collections for 2007-08 are pegged at Rs 25,000 crore and, if the rate is brought down by 1%, the states stand to lose Rs 6,250 crore. The Centre will transfer 33 new services of inter-state and local nature such as performing artists, entertainment, power distribution, amusement parks, parking, cleaning and legal services as part of compensation to states. The 44 old services that are being transferred include private security services, real estate agencies, taxi, tent, outdoor catering, dry cleaning and tour operators.

However, the Centre would continue to collect service tax on the transferred service for a year till states set up their own machinery. As per the roadmap agreed to between the Centre and states, CST will initially be cut by 1% from 4% to 3% and thereafter a 1% reduction in each subsequent year will be effected.