In a rare instance, the lower house of Parliament has agreed that the Taxation Laws (Amendment) Bill, 2007, should not be referred to a parliamentary standing committee, bypassing a system of reviewing it and thus increasing the certainty of its becoming law. The Bill will allow the government to reduce the Central sales tax from 4% to 3% from 1 April, and is now expected to be listed for discussion in the Lok Sabha on 19 March.
There were serious concerns that the implementation of the phasing out of the CST would be delayed, after the Bill was referred to the standing committee on finance, earlier this week.
“There were apprehensions that the Bill could take a minimum of six months to be passed, putting the entire CST phase-out roadmap at risk. Consequently, even work on the goods and service tax would have been delayed,” a government official told Mint.
The Centre and the states have, after lengthy deliberations, agreed to phase out the CST by April 2010.
Removal of the Central sales tax is part of the tax reforms being initiated ahead of the introduction of a goods and service tax with effect from 1 April 2010.
The government’s justification for phasing out CST is that it is an origin-based tax, or tax imposed when goods leave their production base.
This tax is inconsistent with value-added tax, which states are now imposing, and is a destination-based tax, or tax paid at the point of purchase of goods. Also, it adds to the cost of selling goods since traders cannot get a rebate or refund on it against VAT.
The Bill also amends the Additional Duties of Excise (Goods of Special Importance) Act, 1957, which would release tobacco from the list of declared goods. That, in turn, would allow states to levy VAT on tobacco at a rate higher than 4%. Under current provisions, declared goods cannot be taxed at more than 4%.
The West Bengal government, which presented its Budget on Friday, said it would levy a 12.5% VAT on tobacco, excluding ‘bidis’.