Centre, states to jointly work out CST compensation

Finance Minister Pranab Mukherjee today met the empowered group of state finance ministers and agreed to resolve the issue of compensation to the states against losses arising out of the Central Sales Tax (CST). States have been seeking adequate compensation from the government for the loss in revenue due to reduction in CST.

“This discussion was very fruitful. It ended with the finance minister’s positive note. There will a joint mechanism (between the Union government and the empowered group of state finance ministers) to facilitate the compensation to the states,” Asim Dasgupta, chairman of the empowered group and finance minister of West Bengal, told reporters after the meeting with Mukherjee.

Kerala Finance Minister Thomas Issac said Mukherjee has agreed in-principle that last year’s package would be included this year. He said the government has estimated the arrears and this year’s compensation at Rs 14,000 crore.

The government had reduced CST from 4 per cent in 2006-07 to 3 per cent in 2007-08, and further to 2 per cent in 2008-09, and it was conveyed to the states that appropriate compensation would be given against the loss of tax collection. The rate was to be reduced further to 1 per cent from April 1, 2009, and to zero from April 1, 2010, coinciding with the proposed introduction of the Goods and Services Tax (GST). It was, however, put on hold.

The issue of compensation to the states for loss in revenue was also discussed recently at a meeting of the state finance ministers with finance ministry officials on GST.

Dasgupta said a consensus on compensation package would facilitate reaching convergence on GST.