CST compensation formula approved, paves way for GST rollout

 Bhubaneswar: The Centre and states have resolved the contentious issue of CST compensation with the states agreeing for a lower payment of Rs 34,000 crore for phasing out the Central Sales Tax, a precondition for rollout of the Goods and Services Tax (GST). “The amount of compensation for three years - 2010-11, 2011-12 and 2012-13 - was about Rs 34,000 crore. The Centre has agreed to pay this compensation amount to states,” Deputy Chief minister and Finance Minister Sushil Kumar Modi. According to the resolution at the meeting on CST issue, the Centre would bear 100 per cent of the loss accrued to states in 2010-11 fiscal on account of lowering of CST. However, for 2011-12 and 2012-13 fiscal, the Centre would give 75 percent and 50 percent of the losses to the states. [caption id=“attachment_605417” align=“alignleft” width=“380”] States demanded whenever GST was implemented, compensation should be provided for five years. PTI[/caption] CST, a tax imposed on the inter-state movement of goods, was reduced from 4 percent to 3 percent in 2007-08 and further to 2 percent in 2008-09 after the introduction of Value-Added Tax (VAT).   The centre had then promised the states that it would bear losses due to reduction of CST. “However, the promises were not kept,” Modi said adding the Empowered Committee accepted a central proposal to reduce the rate of compensation for early payment. The committee set up by Finance Minister P Chidambaram to resolve the CST issue had suggested that the payment of Rs 34,000 crore be made to the states towards losses on account of phasing out of CST. The CST was to be phased out totally after the introduction of GST, which was originally scheduled to be launched from April 2010. Finance Minister P Chidambaram recently said that even as GST Bill is unlikely to be passed by April 2013, he hopes to introduce it in the Monsoon session. The GST rollout has missed several deadlines on account of differences over contentious issue of CST compensation and design of the GST structure between the states and the Centre.  Introduced in Lok Sabha in March 2011, GST Constitution Amendment Bill is with the Standing Committee on Finance. Modi said that the states desire that the GST should be rolled out in next fiscal, failing which they would revert to the CST levy of 4 percent. Finance ministers of 13 states - Gujarat, Assam, Jammu and Kashmir, Chhattishgarh, Karnataka, Madhya Pradesh, West Bengal, Punjab, Bihar, Tamil Nadu, Odisha, Delhi and Haryana attended the meeting while other states were represented by senior finance department officers. The Empowered Committee would deliberate on the GST issue today. PTI