States to get Rs 7,000 cr for CST loss

The Union Cabinet on Thursday cleared a sum of Rs 7,029 crore as compensation to states for 2010-11 for the losses they suffered due to reduction in the central sales tax (CST) rate, in a bid to rope in states to agree on the proposed Goods and Services Tax (GST). State finance ministers are scheduled to meet tomorrow to discuss GST. The sum is, however, less than half the figure of Rs 16,000 crore demanded by states for 2010-11, including arrears for earlier years.

Briefing about the Cabinet decisions, Information and Broadcasting Minister, Ambika Soni, said the government would release Rs 3,000 crore to states during the current financial year and the remaining amount in the next financial year.

“The financial implication of this proposal is estimated at Rs 7,029 crore. Of this, the government has already earmarked Rs 3,000 crore towards compensation to the states in the Supplementary Budget allocation”, the minister said.

As part of rationalising its tax structure, the government had reduced CST rates from 4 per cent to 3 per cent with effect from April 1, 2007, and 2 per cent a year later.
 

OTHER DECISIONS

* Amendments to Coinage Bill, 2009, to amalgamate existing Acts related to coinage

* Transfer of lease of 9.69 acres of land to Kendriya Vidyalaya Sangathan at Air Force Station, Thanjavur

* CCEA approval to Foreign Investment Promotion Board recommendation to allow Enam India Infrastructure Fund Ltd, Mauritius, to invest approximately Rs  3,450 crore in Enam India Infrastructure Fund for equity-linked investments in infrastructure and energy sectors

CST compensation is a contentious issue and comes in the way of an agreement on GST between states and the Centre. States say if compensation is not provided for CST, then there is no guarantee of the Centre compensating them for revenue loss after the proposed GST regime comes into effect.

State finance ministers will meet tomorrow to discuss the GST issue, and are also slated to meet the finance minister.

CST is a levy imposed on the inter-state movement of goods and is considered distortionary in VAT or GST regime. Hence it is proposed to be abolished once GST comes.

The Cabinet also approved the recapitalisation of regional rural banks (RRBs), and Rs 1,100 crore as central share for the purpose during 2010-11 and 2011-12. The Cabinet also approved a Rs 100-crore capacity building fund for RRB staff, and a Rs 700-crore contingency fund to protect weak RRBs.

The Cabinet also decided to amend the Press and Registration of Books Act, 1867, to provide legal backing to several executive decisions taken in this sector. The guidelines that refers to foreign direct investment limit in print media, the publishing of Indian editions of foreign journals and news papers etc, will now have a statutory backing. “The new Act has detailed provisions for verification of a title and provisions to prevent ‘title-squatting’ by non-serious publishers,” Information and Broadcasting Secretary Raghu Menon said.