New Delhi: States on Friday asked Prime Minister Manmohan Singh to resolve the CST compensation issue by August 7 so that there is no "trust deficit" before introducing GST, dubbed as a big-ticket tax reform.
"States are angry, they are agitated. We have urged the Prime Minister to resolve the issue by August 7. There are about 20 days and we hope he (Singh) will resolve the issue," the Chairman of Empowered Committee of State Finance Ministers, Sushil Kumar Modi, told reporters here.
The committee, which met here, has sought meeting with the Prime Minister.
States got only Rs 6,393 crore as compensation for reduction in Central Sales Tax (CST) rate from the Centre in 2010-11 against the demand of about Rs 19,000 crore. They have been told by the Centre there would be no more compensation.
Modi said states are suffering losses due after reduction in CST rate to 2 percent from 4 percent and should be compensated as promised by the Union government.
"If there is trust deficit at the beginning of GST, then how the states will rely on central government that it will compensate states when GST will be implemented," he said, adding that "if CST compensation issue is not resolved there would be difficulties in implementation of GST".
West Bengal Finance Minister Amit Mitra said it was the time for the Centre to keep its commitment on compensation and states should be compensated for revenue loss on CST reduction till GST is implemented.
"All the states are on the same page. CST issue must be settled," he said.
Earlier, Modi had written a letter to Singh, who also holds the finance portfolio, saying state governments would be forced to adopt certain tax measures which may not be in the interest of tax reforms.
When asked about next course of action if the issue is not settled by August 7, Modi said, "Executive Council will meet and decide".
Seeking early solution to the compensation issue, Mitra said, "the matter is setting a wrong precedence and wrong vibrations ... How can we go to GST when there is no trust on a issue like CST."
The CST is collected by the Centre and distributed among states. As a pre-cursor to GST, Centre and states had agreed to phase out CST from April, 2007 over a period of three years and CST rate was reduced to 3 percent and then to 2 percent.
In his letter to the Prime Minister, Modi had said that originally when it was decided to phase out CST, it was presumed GST would be implemented from April, 2010.
Modi said that the Prime Minister has not replied yet.
When asked if GST could be implemented from April 2013, Modi said both Centre and states are in favour of GST, but he would not like to comment on timeline. He also said neither states nor the Centre should be blamed for delay in the roll- out as implementation of big reforms is a time-taking affair.
However, Gujarat Finance Minister Saurabh Patel and Madhya Pradesh Finance Minister Raghavji said GST roll out seems unlikely in 2013.
A Parliamentary panel is scrutinising the Constitution Amendment Bill on GST and is likely to submit report in the monsoon session of Parliament.
Modi said August 7 date has been decided because after that the monsoon session would begin and the Centre would be occupied with Parliament related works.
He said the states had also sought a meeting with the then Finance Minister Pranab Mukherjee on the CST issue, but instead the EC got a "rude" letter from the Finance Secretary that 2010-11 compensation should be considered as last installment.
To a query regarding CST compensation for 2011-12 and the current fiscal year, he said let the Centre first clear the dues of about Rs 12,666 crore for 2010-11.
Earlier, the Empowered Committee had suggested the CST rate be raised to the earlier 4 per cent in case the Centre is not able to compensate them due to financial constraints.
Patel also pointed out that IT infrastructure of GST Network is yet to be put in place and there are other issues that needs to be resolved before GST implementation.
Modi also said the EC discussed issue of entertainment tax and luxury tax collected by states on certain business activities like DTH and restaurants on which the Centre has also imposed service tax.
"We urge the Centre not to impose service tax where entertainment and luxury taxes are collected by state governments," Modi said, adding a detailed draft proposal on the issue would be prepared for further discussion.