The Haryana government has raised the issue of central sales tax (CST) compensation and a pragmatic approach in the implementation of tax reforms to safeguard the interests of the states.
Speaking at the pre-Budget consultations meeting of Finance Ministers of States and Union Territories, presided by Union Finance Minister P Chidambaram in New Delhi yesterday, the finance minister of Haryana, Harmohinder Singh Chattha, said the State of Haryana has always been a front runner in introducing VAT and whole heartedly supports and appreciates the initiative taken by the Government of India and the empowered committee for the introduction of GST.
However, being a net producing state, Haryana will incur huge revenue loss on account of zero rating of CST under the GST dispensation and accordingly, under the GST regime, State should be compensated by the Union Government on long-term basis. Further, more transparency is needed in the entire process of processing of compensation claims that will be filed by the states and for that there should be an independent body comprising of representatives from various states working in coordination with the Empowered Committee.
The issue of CST compensation is more important for our State because the proportion of CST revenue vis-a-vis the total tax revenue of the state is very high for Haryana being a net producing state. Last year, the state had suffered a loss of Rs. 3100 crore on account of reduction in the rate of CST from four per cent to two per cent and for the current year, the loss would be to the tune of Rs 3500-3600 crore. Such a loss will have a crippling effect on the state finances unless the state is compensated for the loss in respect of the previous financial year as well as the current financial year.
Though a subcommittee has been constituted to look into the CST compensation issues, yet he said that he would emphasize that the aforementioned calculation error can be and should be rectified ahead of the common issues that the States are raising.
He said the Government of India has recently initiated a scheme for the financial restructuring of distribution power utilities to generate confidence in the financial institutions to restructure the short-term liabilities of these utilities. This restructuring has put a tremendous financial stress on state governments.
The Government of India should increase its contribution to the restructuring cost. The consumers face the prospects of rising power tariff on account of higher input costs of coal, railway freight charges and payment of fixed costs on idle capacity owing to short supply of coal.
He said that as the Government of India is about to launch PMGSY-II under which the cost sharing is proposed to be taken up on 50:50 basis between the State Government and the Central Government, instead the PMGSY II be implemented on 25:75 cost sharing basis between the State and the Centre.
The criteria for allotment of funds under the scheme Central Road Fund was based on 60 per cent Fuel Consumption and 40 per cent geographical area till the year 2009-10, when it was revised to 30 per cent% fuel consumption and 70 per cent geographical area. As a result, the allocation for Haryana reduced from Rs 87 crore to Rs 57 crore. Since Haryana is contributing a sizeable amount because of its higher fuel consumption, the old criteria should be restored.