State governments are demanding that the Centre
compensate them for loss of revenue due to reduction of
Central Sales Tax (CST) till the proposed Goods &
Services Tax is implemented, a move that is expected to
further increase finance minister Pranab Mukherjee's
headache.
Alternatively, Bihar deputy chief minister Sushil Kumar
Modi, who heads the empowered committee of state finance
ministers, has suggested that CST-levied on inter-state
transactions-be doubled to 4%. "Due to financial
constraints, if the government of India is not in a
position to continue to pay CST compensation to the
states, then CST rate may kindly be restored to 4% from
April 1, 2012," Modi said in a letter to Mukherjee. Modi
said the Centre should release full CST compensation for
the current and previous financial years. Under GST, a
uniform taxation system, where credit is given for
inter-state trade, is proposed to be put in place.
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 such as 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 had already made budgetary provisions on this
account.
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 CST and has promised to
compensate the states for loss of revenue due to reduction in the CST rate to
2%, from 4% earlier.
