Pressure is mounting on the Prime Minister, Dr Manmohan Singh, to address the vexed issue of Central Sales Tax (CST) loss compensation to the States.
Faced with little success in their earlier efforts, the Empowered Committee of State Finance Ministers, on Friday, came up with a veiled-threat that the Goods and Services Tax (GST) introduction would hit a roadblock if the CST loss compensation issue was not urgently resolved by the Centre.
“If there is trust deficit at the beginning of GST, then how can the States rely on the Central Government on compensating the States when it will be implemented,” Mr Sushil Kumar Modi, Chairman of the Empowered Committee, told reporters here.
The Empowered Committee has sought a meeting with the Prime Minister to apprise him of the issues and make a case for early disbursal of compensation to States..
The Centre had earlier agreed to compensate the States for revenue loss faced by them due to the reduction of CST from 4 per cent to 2 per cent.
But later the CST revenue loss compensation issue became a point of contention between the Centre and the States. This is because the Centre was keen that States come on board and enable introduction of GST.
With some States refusing to play ball with Centre, the UPA Government had sought to link the release of CST loss compensation to co-operation on the GST front.
“If the CST compensation issue is not resolved, there will be difficulties in implementation of GST,” Mr Modi said after a meeting of the Empowered Committee here.
The West Bengal Finance Minister, Dr Amit Mitra, said it was time for the Centre to keep its commitment. He said States should be compensated for revenue loss on CST reduction till GST was implemented.
“All the States are on the same page. The CST issue must be settled,” Mr Mitra added.
CST is an origin-based tax on inter-State movement of goods. As part of value-added tax implementation, it was agreed to bring down the CST rate from 4 per cent to nil over a period of time.
For the revenue loss that States would face as a result of CST rate reduction, it was agreed that the Centre would compensate their revenue loss.