CST relief: States may not get it all

States wishlist unlikely to find favour with finance ministry as it will squeeze Centre's resources.

The compensation package finalised by states for phasing out the 4 per cent central sales tax from October 1 is unlikely to find favour with the finance ministry as it would severely squeeze the Centre's revenue resources.

"The package seeks much more from the Centre than what was being sought by them (the states) when they first proposed a total cash compensation for the central sales tax (CST) phase-out. They will have to meet us midway on this," a ministry official told Business Standard.

Officials said a final decision on CST compensation would be taken by Finance Minister P Chidambaram soon.

"The states have sought transfer of some services from the Centre. They have, over and above this, also sought an increase in the revenue share from service tax to 50 per cent, up from 30.5 per cent at present. Since this transfer would be on a permanent basis, it would sharply increase the share of revenue resources of the Centre," an official said.

Officials pointed out that in addition to this and other measures like bringing imports under the value added tax (VAT) and the additional excise duty items under VAT, states want any remaining revenue losses to be compensated in cash.

The states have identified 124 services, which are intra-state in nature and do not fall under the service tax net, which could be transferred to them to compensate for revenue loss resulting from the CST phase-out.

In addition to the 124 services, states have identified 68 more services which are intra-state in nature and are presently taxed by the Centre, to be transferred to them.

These include services like advertising agencies, air travel agents, beauty treatment, courier, internet cafe, health and fitness, opinion poll, private security and rail travel agents.