In a bid to carry forward the stalled process of CST phase out, the empowered committee of state finance ministers is set to meet on Tuesday to sort out the issue of compensation for reduction of central sales tax to 2% in 2008-09.
The 1% cut in the central sales tax rate, originally slated to be notified from April 1, 2008, has already been delayed due to lack of consensus between the Centre and states. As reported by FE earlier, state governments had decided not to accept the Centre’s proposal to increase the value-added tax on intermediate products by 1%. The Centre wants states to increase the rate of the value-added tax (Vat) from 4% to 5%.
States have instead asked for a higher monetary compensation of about Rs 10,000 crore from the Centre along with the power to tax some new services, which would mop up another Rs 3,000 crore. The finance ministry is, however, not very keen on providing such a high cash component for the losses and is likely to bargain for a monetary compensation of only about Rs 5,000 crore.
If states are able to work out a work out a consensus among themselves on the compensation package, they plan to meet finance minister P Chidambaram to present their demands after the empowered committee meeting, sources said, adding they would then try to finalise the compensation structure for 2008-09.
State finance ministers had met Chidambaram after their last meeting in January. However the discussions were not very fruitful resulting in the current stalemate on the compensation package. The empowered committee is also expected to carry out further discussions on the draft report on the goods and services tax (GST) and try finalising it.