Common sales tax floor rate by Jan 1
Tribune News Service

NEW DELHI, Nov 16 — States and union territories today agreed to have a common floor rate of sales tax (ST) by January 1 next year and phase out sales tax-based incentive schemes as a mode of attracting investment.

At a meeting of chief ministers and state finance ministers convened by the Union Finance Minister, Mr Yashwant Sinha here, there was a broad consensus regarding the putting in place of a uniform floor rate of ST.

"It was decided that all states and UTs will implement uniform rates as recommended by the Standing Committee of State Finance Ministers", the Union Minister of State for Finance, Mr Dhananjay Kumar told newspersons after the meeting.

The Minister said apart from the uniform floor rate, there would also be special floor rates of 1 per cent and 20 per cent for special items like petro products, bullion, gold articles and precious gems.

Mr Kumar said it had also been agreed that the value-added tax (VAT) would be put in place in the entire country by April 1, 2001.

A Standing Committee of State Finance Ministers would be constituted by the Union Finance Minister in a few days to accelerate the process of introducing VAT.

The Committee would look into the preparation, training, computerisation and publicity, Mr Kumar said adding that it would also monitor the decisions taken at the conference today.

"The Central Government will compensate the states if they lose revenue in the initial period and the National Institute of Public Finance and Policy (NIPFP) will provide technical assistance", he said.

Regarding the rationalisation of central sales tax (CST), the Minister said since the CST was linked to broadening the tax base of states like service tax, consignment tax and declared goods; the NIPFP would be asked to further study the issue. A separate conference of the CMs would be convened subsequently to discuss the issues pertaining to the CST, Mr Kumar said.

Another conference of the chief ministers had been tentatively scheduled for mid-January next year to review the implementation of these decisions and progress achieved by the Standing Committee of State Finance Ministers.

On being asked whether these decisions could lead to revenue loss to states primarily because it was introduced in the middle of financial year, Mr Kumar said the government did not anticipate any revenue loss.

Mr Kumar said it was decided that all sales tax-based incentive schemes including revised definition of the backward areas eligible for this scheme shall be phased out by April 1, 2000.

Speaking at the conference, Himachal Chief Minister P.K. Dhumal urged the Centre to set up a national committee for tax reforms under the chairmanship of the Prime Minister.

Mr Dhumal said such a committee was necessary to evolve a uniform tax structure across the country and check tax rate wars and competitive populism among states.

Mr Dhumal suggested the formation of four tax zones in the country in which all states falling under the zone should have a uniform tax structure.

The Chief Minister said the present rate of the central CST should be lowered and the revenue generated through it should be pooled and distributed among the states.

Stating that the Centre should provide medium term loans to states facing financial crunch, Mr Dhumal said the finances of the states had been badly affected due to a hefty hike in employees’ salaries.

Mr Dhumal also requested the Centre to provide assistance to the hill states for creating infrastructure through the road development fund. He also urged the Centre to implement the resolution regarding the devolution of taxes under which the state’s share had been increased to 29 per cent. The number of sales tax slabs had already been reduced from 12 to 5 in the state, he said while stressing the need to widen the tax base.