Road to GST: States to get ₹12,000-crore 1st tranche compensation for CST phase-out

To pave the way for the introduction of the Goods and Services Tax (GST), the Finance Ministry is likely to clear payment of up to ₹12,000 crore to States as compensation for phasing out Central Sales Tax (CST). The Government plans to move this proposal during the Winter Session of Parliament.

CST is levied on goods in inter-State trade. As a precursor to the introduction of GST, it was decided to phase out CST for three years (2006-07, 2007-08, and 2008-09) under the assumption that the new tax would be introduced from April 1, 2010.

It was also decided that compensation would be given on account of CST reduction. Accordingly, CST was lowered from 4 to 2 per cent in two phases, and compensation was paid till 2010-11.

However, States say that payment of about ₹13,000 crore worth of compensation up to 2010 is pending.

Now, combining the previous dues and the provision for future years, the Centre and the have States have agreed on a compensation of ₹34,000 crore, to be paid over three years.

Accordingly, the Finance Ministry plans to provide the first tranche by making a provision in the Supplementary Demand for Grants, to be presented during the Winter Session of Parliament.

These Grants are a mechanism to obtain Parliamentary approval for any expenditure over and above that provided for in the Union Budget. “We will try to find resources in the current year itself (to pay the compensation),” a senior Finance Ministry official told BusinessLine .

An indication of the resolution of compensation payment was evident on August 30, when Finance Minister Arun Jaitley said, “We are also clear that we will have to start the process of payment toward CST compensation.

“Because, if we want the trust of the States in a Central Government, which could be of any party, then the word given to them has to be honoured.”

Jaitley also said that steps to pay the compensation would be taken once “our affordability, itself, improves”.

The Centre plans to introduce the Constitution Amendment Bill for GST during the Winter Session. Once, Parliament approves the Bill and half of the State Assemblies endorse it, the path could be cleared for introduction of GST from April 1, 2016.

Meanwhile, there is good news on the resources front.

First, the Reserve Bank of India has transferred its entire surplus of ₹52,679 crore for 2013-14 to the Centre.

This is about 60 per cent more than the ₹33,010 crore transferred in 2012-13.

Second, the sale of the Government’s stake in three Central Public Sector Enterprises — Coal India, ONGC and SAIL — is expected to fetch ₹42,000 crore.

Third, on the expenditure side, the subsidy outgo is likely to be lower than the Budget estimates, as global crude prices are falling.

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