Government approves Rs 33,000 crore CST compensation to states/UTs

NEW DELHI: Government today approved the release of Rs 33,000 crore in tranches to states and Union Territories to compensate them for revenue loss on account of phasing out of Central Sales Tax for three financial years up to 2012-13.

In the first phase, Rs 10,800 crore is payable for 2010-11 as balance CST compensation, sources said.

The decision to release the compensation was taken in the Cabinet meet.

There is a provision in the Budget for CST compensation in the revised estimates of 2014-15.

"This will be used to release payment to states," sources said. Government has already taken the permission of Lok Sabha to release about Rs 11,000 crore as CST compensation.

As part of the roll-out of proposed Goods and Services Tax (GST) regime, the CST is being phased out and has been reduced to 2 per cent, from the earlier 4 per cent. The Centre collects CST and distributes it among states.

CST, a tax imposed on the inter-state movement of goods, 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.

The payment of compensation for the loss incurred on account of reduction in CST to 2 per cent from 4 per cent in 2010-11, 2011-12 and 2012-13, has to be made to states and Union Territories.

The amount is proposed to be released in 2014-15 and the subsequent two fiscals.

Based on the preliminary estimates, Rs 33,000 crore "appears to be payable" to states and UTs for the entire three fiscals.