The Centre has pushed the onus of deciding the rate of central sales tax (CST) on the state governments instead of taking a decision on the phasing out of CST in the budget this year, which had been promised by finance minister Yashwant Sinha.
In the Finance Bill 2002, the finance ministry has proposed that in Section 8 (sub-section 1) of the CST Act, after the words "four per cent of turnover" the words "or at the rate applicable to the sale or purchase of such goods inside the appropriate state under the sales tax law of that state" be inserted.
The amendment to the CST Act has been proposed to move towards the value-added tax (VAT) regime by April 2003. A modification in the CST was one of the major demands of the state governments.
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While the current provision means the states will have to decide on the applicable rate, the insertion has created confusion among the state governments about which state will have the power to levy the tax. The state governments have sought a clarification from the finance ministry on the issue.
According to officials, there has to be an amendment to the bill stating the lowest rates in the state of origin or destination would be applicable.
Unless this clarification is made, there could be a double taxation on goods as no state will be willing to give up its taxation powers creating problems in the administration of the VAT regime, they add.
In the earlier plan, as a build-up to ushering in the VAT regime from April 1 this year, the Centre had proposed to reduce the CST rate from four per cent to three per cent in this fiscal itself, with the ultimate aim of eliminating the tax in a phased manner to avoid cascading of taxes under the new tax regime.
But along with the phase out the states have been demanding adequate compensation too as the tax accounts for 25 to 30 per cent of their total tax revenue.