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Finanace ministers meet over sales tax losses
January, 25th 2013

The Empowered Committee of State Finance Ministers, headed by Bihar's FM SushilModi, would discuss about the Centre not compensating states suffering losses due to reduction in central sales tax (CST) rates and delay in introduction of the proposed Goods and Services Tax (GST) tax at its next meeting slated here for January 28 and 29, official sources said on Thursday.

Official sources said the Union government brought down the rate of CST from 4 to 3% in April, 2007, and reduced it further to 2% in June, 2008, with a view to gradually phasing out CST (which is not compatible with value added tax) and introducing (GST) from April, 2010.

The Centre had agreed to compensate the states for CST loss and did the same from 2007-08 to 2009-10. It also compensated for 2010-11 but after deducting notional gain calculated on the basis of hike in VAT rate from 4 to 5%, stopped it in 2011-12.

"Because of the Centre's policies and failure to roll out GST, Odisha had suffered an estimated loss of Rs 184.03 crore in 2007-08, Rs 483.29 crore in 2008-09, Rs 554.07 crore in 2009-10 and Rs 664.39 crore in 2010-11. Against these, the Union government sanctioned compensation of Rs 137.02 crore in 2007-08, Rs 425.40 crore in 2008-09, Rs 484.49 crore in 2009-10 and Rs 256.17 crore in 2010-11," a finance department officer said.

The state government has been demanding the Centre to pay compensation since 2011-12 and also disapproved the Union government compensating for losses in 2010-11 after subtracting notional gain calculated on the basis of 1% increase in VAT.

In April, 2012, chief minister Naveen Patnaik had written a letter to Prime Minister Manmohan Singh, seeking his personal intervention in the matter. "Reduction of CST is a recurring loss. Hence, the central government should continue to compensate for the loss on account of CST reduction till GST is introduced," he had said. He further said the Union government took a "unilateral decision" not to compensate the states in disregard of the states' concerns and decisions of the Empowered Committee of State Finance Ministers.

"Such unilateral decisions create a trust deficit between the Union government and the state governments which may lead to a logjam in the introduction of GST," he added.

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