The contentious issue of Central Sales Tax compensation has been resolved with state governments agreeing for a lower payment of Rs 34,000 crore for phasing out the CST, a precondition for rollout of the Goods and Services Tax (GST). CST is a tax imposed on the inter-state movement of goods.
"The amount of compensation for three years - 2010-11, 2011-12 and 2012-13 - was about Rs 34,000 crore. The Centre has agreed to pay this compensation amount to states," Bihar's finance minister Sushil Kumar Modi said.
According to the resolution, the Centre would bear 100 per cent of the loss accrued to states in 2010-11 fiscal on account of lowering of CST. However, for 2011-12 and 2012-13 fiscal, the Centre would give 75 per cent and 50 per cent of the losses to the states.
CST was reduced from 4 per cent to 3 per cent in 2007-08 and further to 2 per cent in 2008-09 after the introduction of Value-Added Tax (VAT).
The Centre had then promised the states that it would bear losses due to reduction of CST.
"However, the promises were not kept," Mr Modi said adding the Empowered Committee accepted a central proposal to reduce the rate of compensation for early payment.
The committee set up by Finance Minister P Chidambaram to resolve the CST issue had suggested that the payment of Rs 34,000 crore be made to the states towards losses on account of phasing out of CST.
The CST was to be phased out totally after the introduction of GST, which was originally scheduled to be launched from April 2010.
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