Compensation pact on CST clears way for GST

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Gireesh Chandra Prasad: New Delhi, Jan 29 2013, 05:56 IST

on the issue. States want to be compensated for reduced revenue due to the lowering of CST levied on inter-state movement of goods from 4% to 3% in 2007-08, and further to 2% in 2008-09. CST is supposed to be reduced to nil once the GST is in place, as the former is considered to be incompatible with the destination-based VAT on consumption which the GST is.

“The government of India has decided to compensate states for reduced CST revenue as per the August 22, 2008, guidelines, which do not take into account whether some states have raised value-added tax from 4% to 5% or not,” Modi said.

Finance minister P Chidambaram recently said that he planned to introduce some amendments to the GST constitutional amendment Bill during the winter session of Parliament and was hopeful it would be passed in December. With the thorny issue of CST compensation having been thrashed out, the structure and powers of the proposed GST council, the rates of GST (which will have Centre and state components) and the threshold where the tax would kick in are to be discussed by the empowered committee on Tuesday. The sub-panel mentioned above had made certain recommendations on these aspects.

As a revenue raising measure, some states had increased their VAT rate from 4% to 5% three years ago, which prompted the Centre to deduct any gains from such increase from the compensation due to those states.

Thus, states were given only Rs 6,393 crore for 2010-11, about a third of

... contd.

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