In what could be seen as another positive development for the introduction of Goods and Services Tax (GST), States are likely to get Rs 12,000 crore as compensation through the Union Budget 2013-14. However, the Centre and States are yet to agree on the mechanism.
These indications came from a meeting between Union Finance Minister P. Chidambaram, and the Empowered Committee of State Finance Ministers.
“The Finance Minister (Chidambaram) has assured that he will make a provision towards compensation for 2010-11,” Sushil Kumar Modi, Chairman of the Empowered Committee, told reporters after the meeting.
This is a part of the compensation formulae discussed by the Centre and the States in their meeting in Bhubaneswar last month. Approximately Rs 34,000 crore is to be given. States are to be compensated 100 per cent for 2010-11, 75 per cent for 2011-12 and 50 per cent for 2012-13.
According to a letter written by Modi to the Prime Minister last year, for 2010-11, Central sales tax (CST) compensation claimed, as intimated by the States, stood at Rs 19,060.64 crore. However, compensation released, as intimated by the Government was Rs 6,393.94 crore, leaving the due balance at Rs 12,666.70 crore.
CST is levied on inter-State trade. It was decided that CST would be phased out beginning April 2007, over a period of three years. Accordingly, the rate was reduced in two phases to two per cent from four per cent. This plan was made on the assumption that GST would be introduced from April 1, 2010.
Since there is no firm date on introduction of GST, States are now seeking clarity on CST compensation for 2013-14. Modi said some States sought 100 per cent compensation, while some others wanted a rise in CST to four per cent. “The Finance Minister has said that he is open to discuss this issue,” he added.
The meeting also approved the notification for constitution of three sub-committees. The first will discuss and suggest an integrated GST (on inter-state trade) and VAT on imports.
The second sub-committee will advise on a revenue neutral rate (to ensure no loss for States) and supply rules, while the third one will look after exempted items, threshold limits and to prevent small traders from dual control.
Modi claimed that all the States broadly agreed to amendments in the Constitution. Now, the Empowered Committee will draft a model legislation, which will have to be passed by the State legislatures.
shishir.sinha@thehindu.co.in