'Devise ways to absorb revenue loss of net-producing states post GST rollout'

From 2013-14 onwards either states may be compensated fully till GST implementation or CST rate should be increased to 4%, says Haryana

Haryana Government on Thursday again took up the issue of release of its pending compensation of Rs 750 crore for Central Sales Tax (CST) with the Central Government pertaining to the year 2010-11.

The Haryana Excise and Taxation Minister, Kiran Choudhary expressed the views of the State Government at a meeting of the Empowered Committee of State Finance Ministers in New Delhi on Thursday.

While participating in discussion of the CST compensation, Choudhary urged the Union Finance Ministry to release State's pending CST claim of Rs 750 crore pertaining to the year 2010-11 at the earliest.

She said that for the financial years 2011-12 and 2012-13, Haryana has already accepted the recommendations of the Empowered Committee on CST compensation at the rate of 75 per cent and 50 per cent respectively. The Haryana State has also lodged its CST compensation claim of Rs 3,133.15 crores for the year 2011-12.

"However, from the year 2013-14 onwards we reiterate that either the States may be compensated fully till the GST is actually rolled out or the CST rate should be increased to four per cent," she added.

The government has also not accepted the recommendations of the Parliamentary Standing Committee on Finance (PSCF) that the destination-based IGST model favours predominantly consumer states more than producer states and therefore the revenue concerns of these States also needs to be factored in and duly addressed.

The proposed model should not thus act as a dampener or dis-incentive for states with a strong manufacturing base. Haryana being a strong manufacturing base also agrees with the recommendation of the standing committee and requests the central government to incorporate a suitable provision in the Constitutional Amendment Bill to address the concern of the strong manufacturing base states which will lose heavy revenue on the inter-state movement of goods in the GST regime.

A net-producing state like Haryana will suffer a net permanent loss of revenue after abolition of the CST, zero rating of purchase tax on food grains, subsumption of the entry tax and so on. Therefore, the GST Council under the proposed Article 279 A must be given a specific mandate to deliberate upon the losses in the state revenue post-GST and it should be mandated to devise ways to fully compensate for these losses.

She said that at present a big proportion ranging between 20 to 25 per cent of total sales tax revenue of Haryana comes from the CST proceeds on the inter-state sales. In the IGST model being discussed by the committee tax on supplies of goods and services from the exporting States like Haryana would finally flow to the actual consuming State thereby leaving no tax revenue to it. This would seriously disincentivize a net producing State like Haryana which has provided excellent physical and social Infrastructure for Manufacturing, Services and Agricultural Sectors to flourish in the State. There is serious apprehension among the States on the possibility of suffering revenue losses after the implementation of GST. Huge revenue loss due to abolition of CST would results into higher RNR and dependency of the net-exporting States for GST Compensation from the Centre. Bitter experience of CST Compensation has created a trust deficit among the Centre and the States.Therefore, Haryana state proposes that the GST Council under the proposed article 279 A must be given a specific mandate to deliberate upon the losses in the State revenue post-GST and it should be mandated to devise ways to fully compensate for these losses.

She said that the growth rate of VAT and CST upto the month of May, 2014 (2014-15) has been about 10.53 per cent as compared to the corresponding period of last year. This growth has been lower than our expectations since there is a slow down in industrial and manufacturing sectors as well as in the real estate sector. This is affecting sales and purchases of goods in a big way, she added.