The Centre and states decided on Thursday to have a fresh look at the contentious issues blocking the introduction of a goods and service tax (GST), including states? demand for more compensation for their reduced central sales tax revenue.
The other issue on which a consensus needs to be found is the framework of the proposed unified tax regime.After his meeting with state finance ministers, finance minister P Chidambaram said that the CST compensation issue has to be addressed.
?Compensation is being paid for about two years and, then, partially for the third year, but then compensation has not been paid subsequently. That issue has to be addressed. We can’t duck that issue,? he said.
The minister said two committees would be set up to look into these issues separately. ?The committees will submit their reports by December 31,? he said.
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). States, that collectively received R6,393 crore as compensation for 2010-11, have not yet reconciled to the fact the payment stood reduced to the extent they raised the state-level VAT.
They had demanded R19,000 crore in compensation for 2010-11. The finance ministry has been of the view that since some states have raised VAT from 4% to 5% and some others to 4.75%, their compensation should be lowered to that extent for 2010-11. States, however, do not buy that argument.
?The other issue is the design of GST. All states support GST without exception. All of them said we support GST, but we would like to discuss the design of GST,” the minister said.
While the two sub-committees would be set up by Empowered Committee chairman Sushil Modi, the Centre would nominate its members. Revenue secretary Sumit Bose would head both panels.
Madhya Pradesh finance minister Raghavji said if a resolution is not found on the CST compensation issue, states would not go ahead with the rollout of GST.
?States also have an issue with the design of GST,” he said. They fear that the proposed dispute settlement authority for Centre-state disputes would compromise on their autonomy. They also feel disputes could be resolved through a consensus rather than a DSA with a high level of authority.
