The venue of Centre-state wrangling over the central sales tax (CST) compensation is now likely to shift to Parliament. With the Centre refusing to compensate states any further for the losses incurred by them on account of CST reduction, several states have geared up their representatives in Parliament to put pressure on the government to take decision on the matter soon.
According to one of the member of empowered committee (EC) of state finance ministers, the panel has done whatever is required to convince the Union government to compensate states for losses. However, since the Centre is adamant, various state representatives would raise the issue in Parliament. ?States are losing huge revenue. If the Centre cannot compensate us, they should raise CST rate from 2% to 4%,? he said.
CST, a tax on inter-state movement of goods, was reduced from 4% to 3% in 2007-08, and further to 2% in 2008-09, after the introduction of value added tax (VAT). The states were promised that they would be compensated for next three financial years till 2010-11, as it was expected that goods and services tax (GST) would be rolled out by 2011-12.
However, since the implementation of GST is nowhere near, finance secretary RS Gujral had recently written a letter to EC saying that states will not be compensated for 2011-12. Besides, he has said states won’t get compensation beyond the R6,000 crore already disbursed for 2010-11, while the states demanded R19,000 crore.
?Compensation was originally planned for three years. Government of India cannot keep paying compensation endlessly for as many years as GST does not come,? Gujral said earlier this week.
He added that GST was originally scheduled to come from April 1, 2011, and the compensation package was decided after discussing with the EC.
However, EC chairman and Bihar deputy chief minister Sushil Modi countered his view. ?States are not responsible for delay in GST. If we were not serious for GST introduction, then why would the empowered committee be discussing the issue for last 4,5 years?.”
Modi added that EC would take up the issue next month. The EC chairman has also written a couple of letters to finance minister Pranab Mukherjee on the compensation issue. However, there was no response from the finance ministry.
The conflict between the Centre and states on CST compensation would derail GST implementation further, which has been hanging fire for the last four years on lack of consensus on its structure.
In the Budget session last year, the government introduced the GST constitutional amendment Bill in Parliament for conferring simultaneous powers to the Centre and states to levy taxes on goods and services.
However, many states, mainly ruled by the BJP are against the Centre’s imposing VAT and other local levies that are in their domain.
The proposed GST will subsume most indirect taxes like excise duty and service tax at the central level and VAT on the state front, besides local levies. The constitution amendment is necessary as a number of taxes fall under the states’ purview. To come in effect, the Bill has to be passed by a two-thirds majority in both Houses and ratified by at least 15 state Assemblies.