States seek PM’s decision on CST compensation

State finance ministers urged OM to urgently take steps to fully compensate them for their reduced revenue collection.

Written by Fe Bureau | New Delhi | Published: July 13, 2012 5:45 pm

State finance ministers on Friday urged Prime Minister Manmohan Singh to urgently take steps to fully compensate them for their reduced revenue collection in 2010-11 from central sales tax on goods,that was gradually halved to 2% in the run up to the proposed unified goods and service tax (GST). Some states have already found ways of generating extra tax revenue to meet this gap and if more states follow suit,it would come in the way of tax reforms in the country,they said.

Sushil Kumar Modi,deputy chief minister of Bihar and chairman of the empowered committee of state finance ministers said here that the panel expects Singh to address the issue before the monsoon session of Parliament begins on August 7.

“I wrote to the Prime Minister that CST compensation has been delayed. If the issue is not resolved,it would pose hurdles to the implementation of the proposed GST. Today all state ministers,irrespective of political affiliation,have protested at the delay in compensating us,” Modi told reporters after a three hour meeting of the ministerial group.

CST,which is levied on movement of goods from state to state,was lowered from 4% to 3% in 2007-08,and further to 2% in 2008-09 after the introduction of Value Added Tax (VAT).

Modi said that for 2010-11,states have claimed Rs 19,000 crore compensation,but were given only Rs 6,393 crore. The panel wants the union government to pay the remaining Rs 12,666 crore without delay.

He said that if their demand for full compensation is not met,the ministers will take a call on what to do next. Some states like Gujarat,Maharashtra and Delhi,which are severely affected by the payment delay,are forced to adopt tax receipts enhancing measures,he said. If more states follow that,it can come in the way of tax reforms in the country,he added.

The panel will also ask the Prime Minister to withdraw service tax on cable television and direct to home services,on which states levy luxury tax. “State level luxury tax has been applicable on these services for some time and hence,Centre’s service tax should not be applicable on them in the negative list based regime,” Modi said further.

The panel cleared the charter of the special purpose vehicle GST Network (GST N) to be owned by the Centre,the states and the technology partner NSDL. It has a long way to go in setting up the necessary IT infrastructure to track the interstate movement of goods to avoid tax evasion,although former finance minister Pranab Mukherjee was optimistic the necessary facilities would be in place by August.

Tamil Nadu’s minister for commercial taxes C V Shanmugam said that petroleum products and alcoholic beverages should not be part of the proposed GST chain. He said the state has benefited by way of keeping these two commodities outside the Value Added Tax and that a major part of its sales tax collection was from these items.

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