Pay for CST loss or hike rate to 4%: states ask FM

Ahead of Budget, States today asked Union Finance Minister Pranab Mukherjee to either fully compensate them for revenue loss due to reduction in the Central Sales Tax (CST) or raise the levy to 4%.

"Due to financial constraints, if the Government of India in not in position to continue to pay CST compensation to the States, then CST rate may kindly be restored to 4% from April 1, 2012," Empowered Committee of state finance ministers Chairman, Sushil Modi, said in a letter to Mukherjee.

Modi said Centre should release full CST compensation for the current and previous financial year.

While the states have demanded a compensation of Rs 19,060 crore for 2010-11, Modi said only Rs 6,393 crore has been released and many states like Gujarat, Madhya Pradesh, Nagaland and Uttar Pradesh have not received funds.

The pending claims of CST compensation for the earlier years should also be settled at an early date, he said.

"It would be extremely difficult for states to sustain the losses on account of reduction of CST rate," Modi said adding some states have already made budgetary provisions on this account.

Mukherjee will present the Budget for 2012-13 fiscal on March 16.

The letter assumes significance as the Centre has told states that no more compensation would be provided for phasing out of CST, which is payable on inter-state sales.

The Centre is trying to phase-out the CST and has promised to compensate the states for loss of revenue due to reduction in the CST rate to 2%, from 4% earlier.