Govt to release Rs 9,000 cr to states in Central Sales Tax compensation

Press Trust of India
Feb 28, 2013 at 03:32pm IST

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New Delhi: The government on Thursday said it will release Rs 9,000 crore as the first instalment of compensation for losses incurred by states due to reduction in the Central Sales Tax rate, a precondition for the rollout of GST - the indirect taxes regime. It also expressed the hope that a consensus with states on the Goods and Services Tax, which has been in the works for long, will be reached within a few months.

"I propose to take the first decisive step by setting apart, in budget, a sum of Rs 9,000 crore towards the first instalment of balance of CST compensation," Finance Minister P Chidambaram said, presenting the Budget 2013-14 in Parliament.

Recently, the Centre and states resolved the contentious issue of CST compensation, with states agreeing to a lower payment of Rs 34,000 crore for phasing out CST, a precondition for rollout of the Goods and Services Tax. The Centre will bear 100 per cent of the loss accrued to states in 2010-11 fiscal on account of lowering CST. However, for 2011-12 and 2012-13 financial years, the Centre will provide for 75 per cent and 50 per cent of the losses.

Govt to release Rs 9,000 cr to states in CST compensation

The Central Sales Tax rate is a precondition for the rollout of the GST - the indirect taxes regime.

CST, a tax imposed on the inter-state movement of goods was reduced from 4 per cent to 3 per cent in 2007-08, and further to 2 per cent in 2008-09 after introduction of Value Added tax (VAT). Recently in a meeting with Chidambaram, the state finance ministers agreed to prepare a model legislation and set up three committees to sort out various issues for smooth roll-out of GST.

"...I hope we can take this consensus forward in the next few months and bring this to this House a draft Bill on Constitutional amendment and draft Bill on GST," Chidambaram said in the Budget speech. GST, which was to be introduced from April 2010, has missed several deadlines over differences between states and the Centre over contentious issues of CST compensation and the design for GST structure.

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