Sales tax compensation raises rift between centre and states

Posted By: Religare
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Sales tax compensation raises rift between centre and states
Raising rift between the union finance ministry and the state government over compensation for revenue loss due to cut in Central Sales Tax (CST), has put questions over the Centre's credibility to keep its word on compensation for even Goods and Services Tax (GST).

Due to delay in the implementation of the GST which has already missed two deadlines, and is close to missing another one, conflict between the state and central government has increased on many fronts.

Recently, state government has raised objection over the centre's decision to allow airlines directly import Aviation Turbine Fuel (ATF). The states said this decision of the government will hit revenue of Maharashtra, Andhra Pradesh, Delhi and Tamil Nadu, over Rs 2,500 crore.

Rejecting the proposal of the states, finance ministry has denied offering any further compensation to the states for losses on account of reduction in CST.

In this regard, states have asked the Centre to either aid them the full compensation till GST is introduced or be prepared for an increase in the CST rate to four per cent from two per cent at present.

Commenting on the issue, Sushil Modi, chairman of the empowered committee of state finance ministers said, "The states are upset with the letter from the finance secretary. Without resolving issues with the states, the Centre has unilaterally taken this decision. If the Centre is not willing to give any further compensation for CST then the two per cent CST rate should go back to four per cent."

In the recent past, CST, a tax on inter-state movement of goods, was condensed from four per cent to three per cent in 2007-08, and further to two per cent in 2008-09 after the introduction of Value Added Tax (VAT).

Dion Global Solutions Ltd

Read more about: tax, vat, government
Story first published: Monday, March 5, 2012, 9:31 [IST]
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