FinMin ready to dole out Rs 50,000-cr compensation  

In a step towards faster introduction of the Goods and Services Tax (GST), the finance ministry has said it is willing to dole out more than Rs 50,000 crore to compensate states for the losses on account of GST.

The 13th Finance Commission had suggested a compensation of Rs 50,000 crore for five years and the government had accepted the recommendations in February.

In a meeting of the empowered committee of state finance ministers on Friday, finance ministry officials conveyed that the Centre was open to giving more than Rs 50,000 crore, as suggested by the Finance Commission, provided there was a consensus among the Centre and states on the principles of GST.
“We felt there was a need for assurance from the finance ministry on a robust compensation package for states, to give them the right kind of comfort for implementing GST. The finance minister is willing to discuss the matter with us. He has communicated that he is prepared to go beyond the Finance Commission report,” said Asim Dasgupta, West Bengal finance minister and chairman of the empowered committee.

A finance ministry official confirmed compensation could be more than Rs 50,000 crore, but said the exact tax base had to be known before a larger compensation amount was agreed upon.

The compensation suggested by the Finance Commission was subject to the condition that states and the Centre accepted the commission’s model on GST. It said compensation would be given, provided states agreed to introduce GST before 2013 at a single rate.

“By and large, states differ with the views of the 13th Finance Commission on the compensation model,” Dasgupta said. He also said states would meet Finance Minister Pranab Mukherjee in a fortnight.

A discussion paper on Constitutional amendment for GST will be ready in 15 days. At present, it is being vetted by the law ministry and is expected to get a final clearance from it in 10 days.

States also discussed compensation for this year for losses on account of the Central Sales Tax. Dasgupta said the Centre had asked states to suggest a scheme for compensating them for the revenue loss that arose from a reduction in the Central sales tax to 2 per cent for this financial year.

Source: Business Standard, India, dated 22/05/2010