Panel formed on central sales tax formula

A joint working group will be formed to finalise a compensation formula for states on account of the reduction in central sales tax (CST) from the next fiscal year.

The decision was taken at a meeting of the empowered committee of state finance ministers on Value Added Tax with Finance Minister P Chidambaram here on Wednesday.

The 4 per cent CST will be reduced by 1 per cent every year starting 2006-07 and phased out by 2009.

The group, which will comprise officials of the finance ministry and some state sales-tax commissioners, has been asked to submit its report by April 15.

It has been mandated to work out package of compensation for a fixed number of years (around five years) to make up for the revenue loss on account of reduction in the CST over three years.

If approved, the roadmap for reduction in the CST may be implemented from July 1, 2006.

Officials said the working group would also consider the services to be transferred to states. While the levy will remain with the Centre, services of local nature will be given to the states for collection and appropriation.

"States will be allowed to retain 100 per cent of the collection on these services," an official said.

The committee has identified around 128 "services of local nature" in addition to around 30 services being taxed by the Centre which do not have inter-state implications for being given to states for collection and appropriation.

The move to transfer 100 per cent collection of some services to states will require amendment and notification of Article 268A.