The state governments have asked that the Central Sales Tax (CST) be raised back to 4% from the current 2% if the Centre refuses to compensate states for revenue losses that they suffer.
"It would be extremely difficult for states to sustain the losses on account of reduction of CST," Bihar deputy chief minister Sushil Kumar Modi said in a letter to finance minister Pranab Mukherjee earlier this month.
CST, a tax on inter-state movement of goods, was reduced from 4% to 3%in 2007-08, and further to 2% in 2008-09 after the introduction of value added tax (VAT).
"Most of the states, which have been adversely affected by the decision of the government, strongly felt that in case the government is not able to continue compensating states for CST loss, it should increase the CST rate from 2% to 4%," Modi said. States should be compensated for the CST loss till the goods and services tax (GST) is implemented, he added.
The government has introduced a Constitution Amendment Bill that lays down the contours of the proposed GST regime. If adopted, GST can dramatically alter tax administration by giving a one-shot solution to levies such as excise and VAT. The empowered committee has broadly agreed to the Centre's proposal to adopt a "negative list" of services, implying that the Centre will impose tax on all the other services, except those in the "negative list".