CST compensation pact clears path for Goods & Services Tax
The Centre has also dropped its earlier stand that it would deduct from the compensation amount any revenue gain states may have made by increasing state-level value-added tax or VAT from 4 per cent to 5 per cent.
“The stalemate on GST for two years on account of the disagreement on compensation has now ended,” said Modi, adding that the central government and the empowered committee have approved suggestions by a subcommittee chaired by Union revenue secretary Sumit Bose 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 per cent to 3 per cent in 2007-08, and further to 2 per cent in 2008-09. CST is supposed to be brought down to zero once GST is in place.
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 vexed issue of CST compensation having been cleared, 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.
As a revenue raising measure, some states had increased their VAT rate