Setback for GST implementation, CST reduction still on hold

May 30, 2008

The much awaited common Goods and Services Tax (GST), due to be implemented w.e.f. April 1, 2010, is still mired under confrontation and most likely the date would have to be postponed.

The basic idea behind GST was to bring in a common tax across the country to bring in uniformity in prices and conceive an idea of borderless states for trade. The foundation to GST was the gradual phaseout of CST in four years time from 4% to nil.

While CST was successfully reduced from 4% to 3% from April 1, 2007, but owing to differences between Centre and States over compensation, the move to make it 2% from April 1, 2008 didn’t work out and decision is being regularly postponed.

The contention is over the revenue loss to states which is expected to be around Rs.6000 crores. The Central Government wants states to increase VAT on intermediate goods from 4% to 5% and introduce VAT on textiles. However owing to rising inflation and coming elections, no state is willing to buy this argument.

So, it is likely that unless a compromise works out, the issue may get delayed again, which may again call the need for taking hard decision for economic reforms.

Update: CST has been reduced from 3% to 2% w.e.f. June 1, 2008.