Centre, states agree on joint mechanism on CST compensation



New Delhi: The Centre and states on Monday agreed for a joint mechanism to offset losses arising out of Central Sales Tax cut affected in 2007-08, a matter that has not yet been resolved due to differences on the amount of compensation.

The decision was taken at a meeting of states finance ministers and Union Finance Minister Pranab Mukherjee here.

"There will be a joint mechanism (for compensation) involving Government of India officials and Empowered Committee Secretariat and states officials to facilitate the compensation more clearly," Asim Dasgupta, chairman of empowered committee of states finance ministers on Value Added Tax, told reporters after the meeting.

CST, a tax on movement of goods from one state to another, was reduced from 4 percent to 3 percent in 2007-08 and further to 2 per cent in 2008-09 after the introduction of VAT as it is considered distortionary.

Differences still persist on the amount of compensation but Dasgupta expressed hope that it would be sorted out and the Goods and Services Tax roll-out will not be delayed.

"We had discussed issues relating to compensation for losses to states due to reduction of CST... there will soon be convergence of views arrived at by union finance ministry and us working together to resolve the issue," he said.

Dasgupta, refused to divulge any figure when asked about the amount of losses. Sources, however, said according to the Centre, states' claim should be Rs 14,000 crore.

Bureau Report