CST compensation pact clears path for Goods & Services Tax
The UPA government may have crossed a major hurdle in the way of the proposed Goods and Services Tax (GST), with states agreeing to a compensation formula in lieu of the phased reduction of the Central Sales Tax.
The agreement on the compensation package, reached at a meeting here on Monday, clears the way for the proposed GST, leading to its roll-out possibly by 2014-15.
At the Empowered Group of state finance ministers meeting, besides full compensation for 2010-11, the Centre has also agreed to partly offset states’ revenue loss for the subsequent two years arising from a reduction a few years ago in central sales tax from 4 per cent to 2 per cent.
Chairman of the Empowered Committee of State Finance Ministers, Sushil Kumar Modi said a sub-committee has given its recommendation for 100 per cent compensation to states for 2010-11, 75 per cent for 2011-12 and 50 per cent for 2012-13 respectively.
The Centre will have to spend Rs 34,000 crore as CST arrears over next few years, said Modi. The payout is likely to be done in a “staggered manner”.
Though the Centre, in April this year, had decided against giving any compensation citing global macroeconomic uncertainties and also lower growth projections for domestic GDP growth, Modi said a provision for the same would be made in the 2013-14 Union Budget.
The sub-committee on GST design also submitted its report but no conclusion could be reached today. Though GST was originally scheduled for launch on April 1,
