Status of Central Sales Tax (CST) and Compliance cost under GST in India

Introduction

Central Sales Tax (CST) is a tax levied on the sale of goods in the course of interstate trade and commerce. As per the Constitution of India, no state has the power to levy taxes on interstate sales. Central Sales Tax is a tax levied by Central government and collected by State government.

Phasing out plan for CST

As per the ideal VAT system, CST should have been abolished. The roadmap was laid down during the budget speech of 2006-07 by P. Chidambaram. P.Chidambaram said during budget speech as under;

“VAT has proved to be an unqualified success. VAT revenues of the implementing States increased by 13.8 percent in 2005-06 and by 24.3 percent in the first nine months of 2006-07. The next logical step is to phase out Central Sales Tax (CST). I am glad to report that the Central Government has reached an agreement with State Governments to phase out CST. Consequently, the CST rate will be reduced from 4 per cent to 3 per cent with effect from April 1, 2007. I have provided Rs.5,495 crore for compensation for losses, if any, on account of VAT and also on account of CST.”

The rate of 3% is further reduced to 2% w.e.f 1-6-2008. It was expected to be reduced to 1% w.e.f 1-4-2009 and ultimately it was planned to completely abolish this tax. However, nothing happened till date, and ultimately GST will subsume this tax and abolish this practice.

1% additional tax planned in GST - Abolished

Until GST bill was introduced in Rajya Sabha, there was a provision under GST bill to levy 1% additional tax on interstate trade and commerce. However, after the opposition in Rajya Sabha, this provision was ultimately dropped.

Under GST regime, only Integrated Goods and Services tax shall be levied on interstate trade and commerce.

Compliance Cost under GST

GST is widely famous for many of its far-reaching advantages. One of many is being compliance friendly. However, this is something not true. GST is not compliance friendly rather; it will imply heavy compliance burden even on the small dealer.

It is true that compliance cost under GST will increase for the small dealers. Under GST model law, three monthly returns have been prescribed for every person registered under GST law. Now let us have a comparison with the existing compliance structure;

                                                                                                                               (Yearly Basis)

We are ignoring the annual returns, returns applicable in special cases, or return by the casual dealer. Hence, now we can see the big difference between the existing and proposed system. Further, there are huge penalties prescribed for any contravention of the provision under GST law.

Conclusion

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