No move yet on cutting central sales tax

Compensations for VAT-states just half of outlay of Rs 5,000 crore.

The ambitious implementation of VAT to replace the states' sales tax that was introduced last year has been a resounding success, and the states that have implemented VAT showed a revenue buoyancy of around 14.4 per cent in the first seven months, a growth that's higher than that experienced in the past five years in these states.

As a result, Finance Minister P Chidambaram has saved exactly half his projected outlay for compensation for revenue loss "" Budget 2005-06 budgeted Rs 5,000 crore for this. Encouraged, the compensation outlay for 2006-07 has been kept to Rs 3,000 crore.

Announcing this, the finance minister said, "I hope the non-VAT states (eight) will soon join the mainstream as the next phase of reforms (implementing GST) depend on that."

Chidambaram did not announce the expected cutting of the Central Sales Tax (CST). While this could be due to its revenue implications, the Economic Survey yesterday pointed out that the system of information exchange between the states, TINXYS, is still not in place. During 2004-05, the CST collections for all states was Rs 15,100 crore, and states have been asking for full compensation for this.

The finance minister today said, "The loss of revenue may be compensated through monetary or non-monetary means."

The Empowered Committee will finally work out the structure of compensation which would include areas on which states could levy a tax to compensate for the loss in CST revenues.

While the debate over the structure of compensation for CST remains unsorted, the FM said there was an urgent matter that needed to be attended to right away, and that is the high sales taxes imposed by states on LPG.

In order to put an end to this practice, Chidambaram put LPG in the list of 'declared goods' under the Central Sales Tax Act.