Central sales tax may go from ‘06 as VAT kicks
With revenue collections zooming in states that have adopted the value added tax (VAT) regime, the Centre could consider a cut in the central sales tax (CST) rate during this fiscal, instead of waiting till ’06-07. If the CST phase-out starts ahead of schedule, the five BJP-ruled states, Uttar Pradesh and Tamil Nadu may have little choice but to adopt VAT. CST is a tax on inter-state goods sale. A cut in the CST rate from 4% to 2% will lower the tax burden and make prices cheaper.
Post-VAT, revenues of state governments have grown by 28-30%. One of the reasons for the buoyancy in collections is the huge spurt in billings till March end. States that have introduced VAT have not made any claims for revenue losses till the end of May. This is good news for the Centre, which has made a budgetary provision of Rs 5,000 crore to compensate states for VAT losses.
Under VAT, a set-off is given to registered dealers for tax paid on inputs and the tax paid on previous purchases. Losses on account of transition to VAT, if any, will be limited to the southern states as their sales tax rates were higher. Northern states are unlikely to incur any losses.