Centre willing to pay more to states for GST rollout  

In what may add momentum to the implementation of the Goods and Services Tax (GST), the Empowered Committee of state finance ministers on GST today said the Centre is willing to increase the compensation package to the states from the Rs 50,000-crore suggested by the Thirteenth Finance Commission.

The compensation, which would be given to states for any possible revenue loss that may arise due to the implementation of GST, is one of the major issue that has been stalling the process of negotiations and consensus building among the states and centre.

“The Union finance minister has communicated to us that he is prepared to go beyond it (the 13th Finance Commission-- TFC--recommendation on the compensation),” EC Chairman Asim Dasgupta said adding that the assurance of a robust compensation package would provide the right kind of comfort to states. Further, as regard the constitutional amendments, Dasgupta said a concrete paper on the constitutional amendments for introducing GST would be available within a fortnight.

The TFC had suggested a Rs 50,000-crore compensation package as part of the “grand bargain” to incentivise the states for migrating to GST during first five years.

However, the package would be subject to various conditions including introduction of GST before 2013 at a single rate.

Dasgupat said that by and large states don’t agree to the recommendations made by the TFC.

According to the sources in the finance ministry, the compensation package would be though more than Rs 50,000 crore, it would be available only when tax base is known.

As regard the compensation related to central sales tax, Dasgupta said the Centre has requested states to suggest a scheme for compensating them for the revenue loss arising due to reduction in the CST to 2 per cent for this fiscal.

CST, which is imposed on inter-state movement of goods, was reduced from 4 to 3 per cent in 2007-08 and to 2 per cent during 2008-09.

The GST, which would replace various central and state taxes, is though expected to be introduced from April 1, 2011 now, various states are convinced that the introduction would take another two-three years as the contentious issues will take time to be resolved.

Source: Indian Express, India, dated 22/05/2010