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States have demanded a
compensation of Rs 1 lakh crore to adopt GST, which is seen as the biggest tax
reform undertaken by the government, and may lead to a fall in revenues for some
states.
A task force set up by the 13th Finance Commission had suggested a compensation
of Rs 50,000 crore for the states to offset the revenue loss on account of the
reduction in central sales tax (CST).
The states have lowered CST to 2 per cent, signalling its gradual elimination
with the launch of GST.
In January, negotiations between the Centre and the states were marred by
disputes over the compensation package.
Official sources said the two sides were likely to reach a compromise soon. They
added that the Centre could be ready to compensate the states in the initial
years, provided there was a consensus on the broader framework for GST,
including an acceptable rate.
Bengal finance minister Asim Dasgupta, who is also the chairman of the empowered
committee, met finance minister Pranab Mukherjee on Friday to discuss various
unresolved issues, including compensation.
Earlier, Vijay Kelkar, chairman of the 13th Finance Commission, had said the
Centre could consider a compensation package, which was higher than the proposed
Rs 50,000 crore.
Tamil Nadu and Gujarat, having a high concentration of manufacturing industries,
were most vocal in their demand for more relief during the January meet.
The finance minister in his address at the Confederation of Indian Industry’s
annual session, recently, said the Centre would shortly start releasing CST
compensation funds.
According to analysts, the government’s willingness to release funds will remove
a friction point, which has disrupted the implementation of GST.
The launch of GST requires constitutional amendments as the existing demarcation
between the kinds of taxes the Centre and the states can collect will have to be
removed.
The GST rate will be another debatable issue at the meeting. While the Centre
has proposed a revenue-neutral rate of 12 per cent, the states have demanded a
rate of 18-20 per cent.
Source: Calcutta Telegraph, India, dated
16/05/2010
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