States' ultimatum to Centre on CST may further delay GST

Last Updated: Fri, Jul 13, 2012 19:00 hrs

The wait for the Goods and Services Tax (GST) might get longer, with the states on Friday giving the Centre a three-week deadline for a solution to the Central Sales Tax (CST) compensation issue.

The Empowered Committee of State Finance Ministers urged Prime Minister Manmohan Singh to resolve the issue by August 7, to ensure there was no “trust deficit” before introducing GST. States warned if CST compensation issue was not resolved, there would be difficulties in implementing GST.

“States are angry, they are agitated… If there is a trust deficit at the beginning of GST, then how will the states rely on the Central government that it will compensate them once GST is implemented,” Empowered Committee Chairman and Bihar’s Deputy Chief Minister Sushil Modi told reporters.

Gujarat Finance Minister Saurabh Patel and Madhya Pradesh Finance Minister Raghavji said GST rollout seemed unlikely in 2013.

The executive council of the Committee will meet and decide on the course of action if the matter is not resolved by August 7.

Earlier this month, Modi had written a letter to the Prime Minister, who is now handling the finance portfolio, to intervene in the matter and address the concerns of the states. He said if CST compensation was not given till the introduction of GST, the states would suffer substantial revenue losses and would be forced to adopt certain tax measures which might not be in the interest of tax reforms.

CST, a tax on inter-state movement of goods imposed by the Centre but collected by states, was reduced from 4 per cent to 2 per cent as a step towards GST. States asked for CST compensation of about Rs 19,000 crore for 2010-11, but the Central government gave only Rs 6,393 crore.

Finance Secretary RS Gujral wrote a letter to the states saying the government could not go on paying endlessly to the states if they were not willing to come on board for GST.

"All the states are on the same page. The CST issue must be settled. The matter is setting a wrong precedence and wrong vibrations... How can we go to GST when there is no trust on an issue like CST," said West Bengal Finance Minister Amit Mitra.

Due to delay in the rollout of GST, states have asked for compensation for 2011-12 also. The government, however, made a provision of only Rs 300 crore for CST compensation in this year’s Budget.

Parliamentary panel gets feedback
A Parliamentary panel on Friday called Parthasarathi Shome, who played a crucial role in conceptualising state-level VAT and initial schemes for GST, and Vijay Kelkar, chairman of the 13th Finance Commission, which made its own recommendations on the new indirect tax regime, for feedback on GST.

At a meeting of the panel, they suggested that petroleum products, coal and alocohol be brought under the proposed GST and exempted list be pruned, those in the know told Business Standard. The standing committee of finance, headed by former finance minister Yashwant Sinha, is vetting a constitution amendment bill to enable introduction of GST.

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