Finance minister P Chidambaram is likely to announce the government’s commitment to rolling out the goods and services tax in the Union Budget 2013-14. He may also announce a compensation package for states that have lost revenue in 2010-11 due to the reduction of central sales tax to 2 per cent.
Though a deadline for introduction of the country’s largest indirect tax reform is yet to be fixed, the Union finance ministry on Thursday agreed to provide a Rs 34,000 crore compensation package for losses from the CST rate cut for the three years starting 2010-11.
This is part of the compensation formula worked out by the Empowered Committee (EC) of State Finance Ministers last month, under which the Centre will fully compensate states for 2010-11, pay for 75 per cent of the losses in 2011-12 and refund half the losses for 2012-13. The Centre has already paid Rs 6,393 crore as compensation to states for 2010-11 but claims amounting to Rs 19,000 crore are still pending.
“The Union finance ministry is likely to make a provision in the Budget for a full compensation to states for CST losses in 2010-11,” said EC chairman and deputy chief minister of Bihar Sushil Modi said after the meeting, adding that the finance minister has also assured revisiting CST compensation for 2013-14 since “implementation of GST may take longer”.
Modi said that for 2013-14, state government’s will thrash out a formula later in the year by either seeking full compensation from the Centre or reverting to a 4 per cent rate for CST.
Three new committees will also be set up to examine GST-related issues and will be jointly headed by Rashmi Verma, additional secretary, finance ministry and Satish Chandra, member secretary, EC.