Exclude revenues post-Form D abolition from CST basket: States

More is always welcome. States have now written to the Centre asking it to exclude revenues generated due to abolition of Form D while calculating the compensation for phasing out of central sales tax (CST).

All central and state government departments purchases were made under Form D, which provided for concessional rate of tax (4% CST). The Centre and empowered committee of state finance ministers agreed to imposition of value-added tax on such purchases.

This was counted towards the compensation package given to states for the phaseout of CST which began from this fiscal. The CST was reduced from 4% to 3%, marking a step forward to the introduction of a unified goods and service tax (GST) by April 1, 2010.

The CST is inconsistent with the VAT, which is a multi-point consumption tax on value addition, with an input tax credit facility. Under the CST Act, the tax is collected by the Centre and disbursed to states.

The abolition of Form D would lead to additional tax collection of Rs 1,500-3,000 crore annually to the states. The CST collections in 2005-06 stood at about Rs 16,000 crore. Collections in 2007-08 are estimated at Rs 25,000 crore which has been the basis for the compensation.

States are expected to face revenue loss of Rs 6,000-Rs 6,500 crore on account of reduction in CST. It may be noted that the centre had provided Rs 5,495 crore for compensation of losses, if any, on account of VAT and CST. The VAT collections of states have been growing by over 24%.

Besides, Form D, the compensation package includes budgetary support and transfer of revenues from certain services. The centre also allowed states to impose VAT on certain tobacco products which attract additional excise duty and imports. However, states can impose VAT on imports only after a constitutional amendment.