Settle CST compensation issue before demitting office, states request finance minister Pranab Mukherjee

NEW DELHI: States have asked finance minister Pranab Mukherjee to resolve the contentious issue of compensation for reduction in central sales tax ( CST) rate before demitting his office to contest the election of the post of President of India.

"I understand that you may be soon demitting the office of the Union Finance Minister. I therefore, humbly request you to kindly resolve the CST compensation issue before that," said Sushil Kumar Modi, chairman of the empowered committee of state finance ministers in a letter to Mukherjee. A committee of senior officials from the central government and states was asked to thrash out the issue of compensation in April after a meeting between Mukherjee and Modi.

Mukherjee, who is the UPA nominee for the Presidential election, is likely to resign on June 26 ahead of filing nomination to contest the election for the country's highest post.

Lauding Mukherjee's contribution in pushing GST forward, Modi cautioned that if the CST compensation issue remained unresolved it may affect the rollout of GST.

The centre and states had agreed in 2006 to cut CST by 1% every year from April 1, 2007 and eliminate it by April 1, 2010 to coincide with launch of GST. But, the delay in implementation of GST, due to lack of unanimity over its structure, and the global financial crisis led to a pause in the phase-out plan.

The agreed compensation formula included allowing states to tax some services, removal of additional excise duty on tobacco products and textiles, value-added tax on imports, budgetary support and increase in floor rate of value added tax. A large number of these elements such as removal of additional excise duty from tobacco, budgetary support and transfer of revenues from 33 services to states were implemented. But, the Centre did not bring the agreed new services under tax net or impose VAT on imports.