Committees to look into CST compensation, GST design issues: FM

Finance Minister P Chidambaram Thursday said two committees will be constituted to sort out contentious issues that hamper implementation of the Goods and Services Tax (GST).

Updated: Nov 08, 2012, 19:24 PM IST

New Delhi: Finance Minister P Chidambaram Thursday said two committees will be constituted to sort out contentious issues that hamper implementation of the Goods and Services Tax (GST).

While one committee will deal with the Central Sales Tax (CST) compensation issue, the other will deliberate on the design of the GST, Chidambaram said after meeting the Empowered Group of State Finance Ministers here.

"The committees will submit their reports by December 31," Chidambaram said. These two issues will have to be addressed to ensure implementation of the GST, he added.

"The (CST compensation) issue has to be addressed. Compensation is being paid for about two years and then partially for 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 other issue is the design (framework) 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," he said.

While the two sub-committees would be constituted by Empowered Committee Chairman Sushil Modi, the central government would nominate its members to the committee. Revenue Secretary would head both the committees.

After the two sub-committees finalise their reports, the Union Finance Minister would take up the report.

States want the central government to resolve the CST compensation issue before moving ahead with the rollout of the GST, a new indirect tax regime under which various levies would be subsumed into a single tax.

"States want resolution to their CST compensation demand. If demand not met, the states will not go ahead with the GST rollout. They also have an issue with the design of GST," Madhya Pradesh Finance Minister Raghavji told reporters after the meeting of the empowered group earlier in the day.

States, Raghavji said, were opposed to setting up of dispute settlement authority as it would curtail their autonomy.

"The two committees would streamline the CST compensation issues for 2011-12 and also give suggestions on the design framework including exemption and threshold limit," Modi said.

He said states have favoured GST, but added that certain issues need to be solved.

GST, which will empower the Centre and states to simultaneously tax supply of goods and services, was to be introduced from April 2010, but has missed several deadlines.

CST is collected by the Centre and distributed among states. As a pre-cursor to GST, the Centre and states in April, 2007, had agreed to phase out CST over a period of three years and in line CST rate was reduced to 3 percent and then to 2 percent. The Centre had already compensated states for losses up to 2010-11.

As the Centre refused to go on compensating the states for delay in implementation of GST, states had argued that when it was decided to phase out CST, it was presumed GST would be implemented from April, 2010.

In a letter to the Empowered Committee dated January 27, Finance Secretary R S Gujral said states would not be paid any CST compensation from 2011-12 onwards and the payout for 2010-11 will be restricted to the Rs 6,394 crore that had already been paid against the Rs 19,000 crore demanded by the states.

The states have also suggested that they should be allowed to restore the CST rate to four percent in case the Central government was not able to pay any further compensation.

Besides, the states also have serious reservations on some crucial components of the GST design like creation of a Dispute Settlement Authority (DSA) in the constitution itself to prevent deviations in the structure.