Centre may compensate 50% of CST losses to states

Discussions on Goods and Services Tax inconclusive.

The Centre today proposed to compensate the states with 50 per cent of the total revenue loss of Rs 9,000 crore this year due to reduction in the Central Sales Tax (CST).

Finance Minister Pranab Mukherjee asked the Empowered Committee of State Finance Ministers to work out a package where the states have to share 50 per cent of the CST losses in the current financial year.

“We will have to discuss this proposal with the state finance ministers. He (Pranab Mukherjee) has asked us to come back with the new package. It would be about Rs 14,000 crore,” West Bengal Finance Minister and chairman of the state finance ministers’ body, Asim Dasgupta, told reporters after a meeting with Mukherjee.

 

Before introducing the Goods and Services Tax (GST), states want the central government to completely phase out CST and adequately compensate them for the loss in revenue.

The government has estimated the arrears and this year’s compensation at Rs 14,000 crore. States will get Rs 5,000 crore from tax on 33 services transferred to them. The Centre is willing to compensate half of the remaining Rs 9,000 crore — or Rs 4,500 crore — to the states.

The government had reduced CST from 4 per cent in 2006-07 to 3 per cent in 2007-08 and to 2 per cent in 2008-09, and also informed the states that it would compensate them 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 rollout of GST. It was, however, put on hold.

Meanwhile, discussions on the rollout of GST by the empowered group went inconclusive for the second consecutive day.

Dasgupta said states needed more time to build a consensus, and thus, the empowered group was likely to finalise the rate of GST and the date of its implementation by the month-end. On Thursday, he had said that the empowered group would discuss the date of GST rollout in Friday’s meeting.

“We will meet by the month-end and hope to finalise the date and the rate of GST,” he told reporters after his meeting with Mukherjee.

“Yesterday’s discussion over the revenue neutral rate continued in today’s meeting as well. There was no discussion on the date. No decision has been taken yet on both the rate and the date,” said a state finance minister.