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Centre not compensating states for sales tax losses, Odisha finance minister says
September, 04th 2012

The Odisha government on Monday accused the Centre of doing 'dadagiri (bullying tactics)' by not acceding to the demands of different states for payment of compensation owing to reduction in central sales tax (CST) rates.

"The Centre is not compensating the states for the losses they are suffering on account of reduction in CST rates. It is doing dadagiri," finance minister Prasanna Acharya told the state Assembly after ruling BJD legislators accused the Congress-led UPA government of ignoring the recommendations of the Empowered Committee of State Finance Ministers to offset the losses of state governments.

According to Acharya, the Centre 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 phase out CST (which is not compatible with VAT) and introducing Goods and Services Tax (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 in hike in VAT rate from 4 to 5%, but stopped it in 2011-12.

The minister said 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 Centre 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.

Slamming the Centre's decision to stop compensation payment since 2011-12, Acharya disapproved the Union government compensating for losses in 2010-11 after subtracting notional gain calculated on the basis of 1% increase in VAT.

While the Opposition Congress members chose to keep mum on the issue, the treasury bench MLAs demanded the Centre to either restore CST at 4% or compensate states till GST came into force.

In April, 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 of 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 government which may lead to a logjam in the introduction of GST," he added.

 
 
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