States had said last month that if the delay in CST compensation was not resolved, it would pose hurdles to the implementation of the proposed GST. Finance minister P Chidambaram said that he was hopeful of getting the GST Bill passed before the end of the current financial year, which would usher in a more effective and efficient substitute for a plethora of indirect taxes.
A statement from the finance ministry said some members of the panel made this suggestion during the meeting. The issue of compensating states is causing delay on the part of the states in accepting GST and this uncertainty may be settled once and for all, the statement said.
State finance ministers had last month urged PM Manmohan Singh to fully compensate them for their reduced revenue collection in 2010-11 from CST on goods, that was gradually halved to 2% in the run up to the proposed GST. Some states have found ways of generating extra tax revenue to meet this gap and if more states follow suit, it would come in the way of tax reforms in the country, they had said.
CST, which is levied on movement of goods from state to state, was lowered from 4% to 3% in 2007-08, and further to 2% in 2008-09 after the introduction of value added tax (VAT). For 2010-11, states have claimed R19,000-crore compensation, but were given only R6,393 crore.
The panel on GST also considered the possibility of making the decision making process of the GST Council more practicable by providing decisions with two-third majority of the states rather than on consensus basis. Issues relating to the dispute settlement mechanism and exclusion of petroleum products from the GST system were also discussed.
The statement said, quoting Chidambaram, that there are still some issues relating to the GST and its Network (GSTN) to be resolved but these are not insurmountable.