In what could be seen as a major breakthrough on Goods and Services Tax (GST), the Centre and States have agreed on a compensation package of Rs 34,000 crore. The amount is to be given for phasing out Central Sales Tax.
However, this does not mean that GST can be introduced from 2013-14, as the initial legislative structure required for the new indirect tax regime is not yet in place. The Standing Committee on Finance is still studying the Constitutional Amendment Bill. Also, there are some differences on the design of GST.
The Empowered Committee discussed the compensation issue in its two-day meeting in Bhubaneswar which started on Monday.
Phased payout
“The meeting approved a sub-committee’s report on CST compensation after the Centre reluctantly agreed to compensate for three years starting 2010-11,” Sushil Kumar Modi, Chairman of the Committee, told
According to the approved formulae suggested by the sub-committee, the States will be compensated 100 per cent for 2010-11, 75 per cent for 2011-12 and 50 per cent for 2012-13. The compensation will be made on the basis of guidelines approved on August 22, 2008.
Although States were seeking full compensation for all these years, but keeping the Centre’s fiscal condition in mind, they have agreed on a new arrangement with some riders such as a fixed time line for payment, Modi added.
The Centre has said it was open to discussing compensation for 2013-14, he said. CST is levied on goods in inter-state trade.
On November 8 last year, the States and the Centre agreed to form two sub-committees (one on CST compensation and other on design of GST).
The States have also suggested formulating a five-year compensation structure.
“This should be on the lines of the structure implemented at the time of introduction of Value Added Tax (VAT),” Modi said. There was feeling that if 100 per cent compensation is not given for 2013-14, then States should be allowed to raise CST to four per cent.
On Tuesday, the Committee will discuss the second sub-committee’s report on GST design.