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CST compensation to states under examination
August, 09th 2012

In what should be seen as a huge positive towards roll-out of the much-delayed Goods and Services Tax (GST) some time during the next fiscal year, the Centre, on Wednesday, stated that the states demand for continuation of compensation for their revenue loss on account of reduction in central sales tax (CST) was under examination.

Matter of further CST compensation is under examination with the Government, Minister of State for Finance S. S. Palanimanickam said in a written reply to the Lok Sabha.

Many state governments, through the aegis of the Empowered Committee of State Finance Ministers on GST, had represented that the Centre should continue to make up for their revenue loss on account of reduction in the CST rate till the time the GST regime became operational. The GST regime was aimed at empowering the Centre and the states to impose a unified levy on goods and services in lieu of the prevailing indirect taxes.

As a precursor to the GST roll-out, the CST was to be brought down to nil in a phased manner and the resultant revenue loss was to be made good to the states by the Centre. The CST, which is a levy on inter-state movement of goods, is collected by the Centre but the proceeds are shared by the states. At present, the CST rate stands pegged at 2 per cent, down from the earlier 4 per cent.

In his reply, Mr. Palanimanickam said that as per the original decision, the compensation on CST account was only till 2009-10 and that has been paid in full by the Centre.

However, since the GST regime is yet to be implemented, empowered panel chief Sushil Kumar Modi had recently sought Prime Minister Manmohan Singhs intervention to find an amicable solution to the compensation issue. In this regard, the panel had also suggested that in case the Centre was not in a position to pay the compensation, the states should be allowed to restore the CST rate to 4 per cent so as not to lose out on the revenue.

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