CST compensation pact clears path for Goods & Services Tax

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1065999   Finance minister P Chidambaram recently said he planned to introduce some amendments to GST constitutional amendment Bill during the winter session. (Reuters) 1065999 Finance minister P Chidambaram recently said he planned to introduce some amendments to GST constitutional amendment Bill during the winter session. (Reuters)
SummaryCentre will have to spend Rs 34,000 crore in staggered payouts

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 from 4 per cent to 5 per cent 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 what they had demanded.

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