A group of State Finance Ministers has slammed the Centre's decision to not compensate States for loss in revenue share arising from a reduction in Central Sales Tax (CST) for 2011-12.
Mr Sushil Kumar Modi, Chairman of the Empowered Committee of States' Finance Ministers, has written to the Union Finance Minister, asking him to reconsider the decision.
‘Unilateral' decision
“I am surprised to receive a letter dated January 27 from the Finance Secretary, Mr R.S. Gujral, indicating that the issue of payment of CST compensation for the year 2010-11 may be considered as finally settled so far as the Government of India is concerned and that there will be no CST compensation for 2011-12,” he said in his letter.
Terming this decision as “unilateral”, Mr Modi, who is also the Deputy Chief Minister of Bihar, felt that a final view should be taken only after the Finance Minister, Mr Pranab Mukherjee's meeting with the States. Mr Mukherjee had assured that a convenient date will be fixed for the meeting, Mr Modi said.
CST is levied on goods in inter-State trade. As a precursor to the introduction of the GST, it was decided to phase out the CST over a period of three years (2006-07, 2007-08, and 2008-09) with an assumption of GST to be introduced from April 1, 2010. It was also decided that compensation will be given on account of reduction of CST.
Negative list
Accordingly, the Centre decided to give Rs 6,393.94 crore as CST compensation for 20101-11 as per the guidelines and discussions between the Union Government and the States.
However, Mr Modi argued that the Empowered Committee has never agreed for compensation after deducting assumed revenue on account of increase of the lower Value Added Tax (VAT) rate from 4 per cent to 5 per cent.
Now, the States will discuss this matter in the Empowered Committee's meeting on March 3 and formulate the strategy for further action.
The meeting is also scheduled to discuss the negative list for services. This list includes the services which will not be taxed.
Shishir.s@thehindu.co.in