Mukherjee promises robust compensation to states for timely roll out of GST news  

In a bid to speed up talks on unified goods and services tax (GST), finance minister Pranab Mukherjee yesterday reached out to his counterparts in state governments, promising ''robust compensation'' to ensure timely roll out of the crucial indirect tax reform.

Asim Dasgupta, West Bengal FM and chairman of the empowered committee of state finance ministers said Mukherjee communicated with the state government saying he was prepared to go beyond it (the 13th Finance Commission recommendation of Rs 50,000 crore compensation over next five years).

"A finance ministry representative communicated that the union finance minister has sent a message... he will stand by states during implementation of GST to protect any revenue loss,'' he said.

However, according to a central government official the compensation offer was contingent on the states accepting the centre's suggestion of common threshold, common exemption list and uniform goods and service tax rate.

The official did not however elaborate on what could be the likely compensation as he said it would depend on the agreed GST rate.

He added that the draft of the proposed constitutional amendments required for GST implementation would be sent to state finance ministers over the fortnight by the law ministry. Constitutional provisions would need to be amended to empower the centre to tax goods at the trade level instead of factory gate and states to tax goods at the trade level instead of factory gate and states to tax services.

The centre has also assured states compensation on account of central sales tax loss for current financial year going beyond the agreed deal. According to analysts this is a clear indication of the centre's willingness to go the extra mile to take states on board for the roll out of GST on the scheduled 1 April, 2011.

Dasgupta said the centre had an open mind on this and had asked the states to suggest a scheme of compensation which could be deliberated upon for final view.

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

States have expressed mixed reactions to the offer from Mukerjee.

While Bihar deputy CM Sushil Modi has said the assurance on compensation was a positive move other non-congress ruled states remain sceptical. MP FM Raghavji expressed concern on constitutional amendment leading to the creation of finance minsters' council with the union finance minister as chairman and state finance ministers as members to decide on changing the GST rate.

Madhya Pradesh joined Punjab and Haryana to seek purchase tax on wheat outside GST with similar views being expressed by Chhatisgarh which has imposed a purchase tax on rice.

Source: domain-B, India, dated 22/05/2010