Finance ministry slams states for seeking higher CST payoff

Amid repeated complaints by states that they are being inadequately compensated for the revenue lost due a lowering of the Central Sales Tax, the union finance ministry today hit back, saying it could not keep compensating states, especially as they were continuing to block the proposed goods and services tax.

"Compensation was originally planned for three years. The government of India cannot keep paying compensation endlessly for as many years as GST does not come," finance secretary R S Gujral said while addressing a FICCI event in New Delhi.                            

He said CST compensation was being used by states as an alibi for delaying the rollout of the GST, meant to replace a plethora of indirect taxes levied by the states and the centre with a simplified and unified system. The GST would among other things remove the disparities in taxes levied by various states and make goods and services more portable across the country.

The central sales tax is imposed by the centre on inter-state movement of goods, but the revenue goes to the states. The CST rate has been steadily reduced over the past two years or so to 2 per cent from 4 per cent earlier as part of the phasing out of the tax to pave the way for the GST.

Now, the centre is clearly fed up with the states' demands, particularly with opposition-ruled states putting roadblock after roadblock to the introduction of a GST.

In a letter to the states in January, finance secretary Gujral had said the compensation paid so far by the centre should be considered as full and final and no further CST compensation would be given.