The state government decided to demand the release of Rs 2,000 crore Central Sales Tax (CST) compensation before agreeing for the introduction of Goods and Services Tax (GST). Union finance minister P Chidambaram has convened a meeting with state finance ministers on the big-ticket tax reforms particularly implementation of GST on November 7-8 in New Delhi. The state delegation, which finalised its stand, told TOI that it would press for immediate release of CST compensation to agree for GST rollout this month.
State finance minister Anam Ramnarayana Reddy will lead a delegation and press for immediate release of CST compensation for the state so that it could cooperate with the Centre in rolling out the tax reforms.
CST is a tax on inter-state movement of goods imposed by the Centre but collected by states. The states were asked in 2007 to gradually phase out CST to enable GST introduction from 2010-11. The Union cabinet had approved a formula for compensation till 2009-10 for losses accruing to the states due to reduction in CST rate, which was contested by almost all state governments, leading to the delay of GST implementation.
As the GST rollout got delayed, states asked the Centre for compensation beyond 2009-10. The Centre had earlier released Rs 6,000 crore as compensation to states for CST for the year 2010-11 while the states' demand was Rs 19,000 crore. The dispute has deepened with the Centre not transferring any funds to the states over the last two years.
"In case states are not given CST compensation till GST is introduced, states will have to suffer substantial revenue losses and may be forced to increase some other taxes locally which may not be in the interest of GST," opined a senior official in the finance department. While the Union finance ministry is firm on its stand that it would release CST compensation only after the states sign the GST agreement, the states are demanding that they would first receive the compensation to enter into the agreement.
There is trust deficit in the entire process as the Union finance ministry did not keep its word on several issues and not specified the differential treatment for developed, developing and undeveloped states, pointed out state finance department officials.