GST: States agree to reduced compensation on CST losses

The proposed goods and services tax (GST) crossed a major hurdle after finance ministers of various states today agreed on a reduced compensation for their losses due to cut in the rate of central sales tax (CST). The states also agreed to seek centre's nod to revert to 4 per cent CST in case of non-introduction of GST from April.

The decision was taken at a meeting of the Empowered Committee of Finance Ministers headed by deputy chief minister and finance minister of Bihar, Sushil Kumar Modi.

The ministers passed a resolution on CST issue to the effect that the centre would bear 100 per cent, 75 per cent and 50 per cent of the losses of states due to cut in the rate of CST for the financial 2010-11, 2011-12 and 2012-13, respectively, Modi said.

''This could cost the exchequer around Rs34,000 crore for the three years, according to initial calculations, Modi said.

''The centre has said that a staggered payment will be made,'' Modi said, adding, ''This year's budget will have some provisions.''

The states had reduced the rate of CST in phased manner from four per cent to two per cent as per a central directive for introduction of the goods and service tax (GST) beginning 2010. The centre had also agreed to compensate states for loss of revenue.