States today turned down the Centre's proposal to declare mobile phones and tablets as special category goods which attract a lower tax rate of 5%. They also asked the Centre not to put any items under the declared goods category which deprives states of their revenues.
Communications Minister Kapil Sibal had written to the Empowered Committee of State Finance Ministers to consider the proposal. EC questioned the rationale of such a demand from the Union government after slapping excise duty on mobile phones priced above Rs 2,000 in the Budget.
EC Chairman Sushil Modi said 90% of the states were already levying Value Added Tax (VAT) at 5% on mobile phones. Six states - Tamil Nadu, Gujarat, Madhya Pradesh, West Bengal, Chhattisgarh and Delhi are levying the tax at a higher rate of 12.5% and above.
"On the one hand, they (Centre) levy excise duty on mobile phones and on the other hand they ask us to lower the rate. EC is of the firm opinion that nothing should be kept in declared goods. The Centre has agreed that declared goods category won't be there in GST," Modi told reporters.
A presentation was given to the EC for increasing taxes on tobacco products by three times, which could double their revenues and halve its consumption.
The states also discussed a proposal to increase the lower VAT rate to 6% from 5% but no final decision could be taken.
Bihar said it recorded highest growth in its VAT & non-VAT revenue in 2012-13 at 30%, followed by Gujarat at 26.5%, Tamil Nadu at 23.7%, and Jammu & Kashmir at 23%. Manipur, Puducherry and Tripura also recorded over 20% growth, while Goa showed a decline of 5% due to the tax exemption it offered on petrol.
Modi also raised concern on tax evasion by traders transporting goods through railways. He said leased boggies load goods which are not tax paid and the railways don't allow state government officials to do inspection.
States once again raised concerns on levy of service tax by the Centre on air-conditioned restaurants which are already paying VAT. Another area of concern was clause in the Finance Act 2013 that seeks to disallow state PSUs from availing income tax exemption on fee and royalty paid by them to state governments.
The EC formed some committees on prescribing Harmonised System of Nomenclature Code for classifying goods under GST, levy of VAT on sugar and textiles, and draft GST legislation.