Rs 33,000-cr CST compensation to states for GST rollout

Rs 33,000 cr is proposed to be released in 2014-15 and the subsequent two fiscals

To bring states on board for rollout of Goods and Services Tax (GST) by 2016-17, the Cabinet on Tuesday approved the release of Rs 33,000 crore in tranches to states and Union Territories to compensate them for revenue loss on account of cut in Central Sales Tax (CST) for three financial years up to 2012-13. In the first phase, Rs 10,800 crore is payable for 2010-11, sources said.

The total amount of Rs 33,000 crore is proposed to be released in 2014-15 and the subsequent two financial years. CST, a tax on inter-state movement of goods, was cut from four per cent to two per cent in phases after states embraced value added tax from April 1. However, there was a dispute between states and the Centre over the amount of compensation, where the former wanted the latter to build trust with them on this account to enable them to support GST.

The Centre will compensate states on revenue loss after GST is introduced, and the latter feared the former will again not meet its commitment, as was the case with CST. The government has taken permission of the Lok Sabha to release about Rs 11,000 crore as CST compensation this financial year.

The government will set aside Rs 15,028 crore for this purpose in 2015-16, according to Budget Estimates.

The Cabinet move may help in building better relations between the Centre and the states over GST, ahead of the meeting of the empowered committee of state finance ministers to select a new chairman, likely to be held this week.