States want CST hiked back to 4%

States want CST hiked back to 4%

Fiscal Security: States are advocating the measure in case Centre goes back on compensation

The Empowered Committee of State Finance Ministers on Saturday sought the central sales tax (CST) be raised back to 4 per cent from the current 2 per cent in case the Centre refuses to compensate the states fully for losses incurred due to reduction in the CST.

In a meeting held here,the Empowered Committee,chaired by the deputy chief minister of Bihar Sushil Modi,discussed the issue of compensation arising due to phasing out of CST and decided that if states will not get the full compensation,the rates should be increased till the proposed goods and services tax (GST) comes into being.

CST,a tax on inter-state movement of goods,was reduced from 4 per cent to 3 per cent in 2007-08,and further to 2 per cent in 2008-09 after the introduction of value added tax (VAT).

In case the rate is increased to 4 per cent,it will be a major set back for the introduction of the proposed indirect tax regime even as the roll out of GST has already missed few deadlines.


“Ninety-nine per cent of the states are of this opinion,” Modi said adding that the states are angry over the Centre’s decision of not compensating the states as evident from the letter written by revenue secretary RS Gujral to the Empowered Committee,saying that states will not be compensated for 2011-12.

Gujral had also said states will not get compensation beyond the Rs 6,000-crore already disbursed for 2010-11. However,the states’ demand is of Rs 19,000 crore for the year.

Modi called the Centre’s move of not granting further compensation as a unilateral decision taken without consulting the states.

Further,in the meeting,the states also opposed the Centre’s decision of allowing domestic airlines to import jet fuel directly,which the states claimed,will result in a loss of over Rs 2,500 crore to the states.

Recently,the centre allowed airlines to import aviation turbine fuel (ATF) directly enabling them to avoid sales taxes which are as high as 23 per cent in some states.

Till recently,airlines bought ATF from local refiners like Indian Oil Corporation.

The meeting also discussed the proposed negative list by the centre and recommended 35 services which should be included in the lists.

As per the negative list definition,barring the services included in the list,all other services would be subject to tax.

The meeting of the state finance ministers also discussed the issue of Professional Tax.

“We have reiterated our stand on Professional Tax. It should be left to the states to decide on the rates of professional tax and the centre should not prescribe any ceiling”,Modi added.


The government in 1998 had increased the maximum rate of professional tax,which is levied on doctors,lawyers and other professionals,to Rs 2,500 from Rs 250 per annum.