After making intense protests against paring central sales tax, the state has demanded the entire service tax that the state levies. The empowered committee on Central sales tax has asked states to reduce CST, which will be done away with in a gradual manner.
"Special economic zones normally come up around big cities, and we have to create infrastructure like roads, schools, and hospitals in the area but we cannot tax them. A backward state like Madhya Pradesh loses out in revenue. The central government should compensate for building SEZs," MP Finance Minister Raghavji told Business Standard.
A number of SEZs are coming up in the state, which, according to the finance minister, loses at least Rs 50 crore each year to the SEZs.
He also said, "We have asked for special compensation for reducing central sales tax." However, he said the central government would come up with an amicable solution to the problem and "eventually we will have to cut the tax".
The state government will have to reduce central sales tax from the existing 3 per cent to 2 per cent. In a meeting of the committee organised in Kerala last week, the state had asked for adequate compensation against tax cuts and special economic zones.
At present CST is levied on all goods except grains. The finance minister also said the Centre retained a larger pie in tax collection while only 30.5% is available to states.