The Hindu Business Line : VAT: Working group on CST to be set up

In a clear indication that the Central sales tax (CST) ceiling rate would not be cut from the existing 4 per cent from April 1, the Centre and the VAT panel today decided to set up a working group to "work out the modalities of compensation for an appropriate phasing out of CST."

Any cut in CST ceiling rate from April 1 hinged on the States and the Centre agreeing on a compensation package for the CST phaseout.

The annual CST collection during 2005-06 is estimated to be around Rs 18,000 crore.

"The working group would comprise officials of State Governments as well as the Union Finance Ministry. The first draft of this working group is expected by middle April," Dr Asim Dasgupta, Chairman of the Empowered Committee of State Finance Ministers on VAT, told presspersons after an hour-long meeting with the Union Finance Minister, Mr P. Chidambaram.

Pre-condition

Finance Ministers of Delhi and Punjab, the Agriculture Minister of Uttar Pradesh and the Deputy Chief Minister of Bihar were among those who attended the meeting at North Block.

Although the VAT panel had earlier in-principle agreed to a reduction in CST rate from 4 to 2 per cent, it had made it clear that full central compensation was a pre-condition for any cut in CST rate.

Asked about the VAT panel's proposals to the Finance Minister on the CST compensation, Dr Dasgupta declined to comment on the same.

"Since the working group would discuss the modalities of compensation for an appropriate phasing out of CST and we would like to take a collective decision, I would not like to discuss before you the proposals made by us to the Finance Minister today," he said.

Informed sources said that the panel (at their interaction with the Union Finance Minister) was not averse to a CST phaseout mechanism involving a percentage point cut in each of the next four years. Any move to reduce the ceiling rate may involve legislative changes to the CST Act.

Meanwhile, the panel today expressed concern to Mr Chidambaram over the Centre's move in the budget to bring liquefied petroleum gas (LPG) under the list of `declared goods' for the purposes of the CST Act.

"We demanded full central compensation for the revenue loss that States would incur as a result of this move and expressed concern over the fact that the benefits of the reduction was not being allowed to be passed on to consumers," Dr Dasgupta said.

Although Dr Dasgupta maintained that the Centre's response on this front was "not yet conclusive", sources said that Mr Chidambaram had turned down the demand for central compensation to the States on the issue of bringing LPG under the list of `declared goods'.