States shouldn't beg for compensation: Sushil Modi

Won't go with a begging bowl to the Centre, says Sushil Modi

Hit hard on compensation due to a cut in Central Sales Tax (CST) rates, states have demanded compensation for losses due to the new indirect tax system should be made through an independent mechanism once the Goods and Services Tax is in place.

Compensation to states for losses due to a cut in CST rates has been a bone of contention between the Centre and states.

Today, in an interaction with industry chambers on GST, Sushil Modi, chairman of the empowered committee of state finance ministers, said, “We should not go with a begging bowl to the Centre, asking for our compensation.”

Modi, also the deputy chief minister and finance minister of Bihar, said states had demanded compensation for losses due to GST for the first five years after the indirect tax system was in place. “States will incur losses because of phasing out of CST. There would also be losses due to removing of cascading and subsuming of most indirect taxes. States would incur heavy losses and the Centre would gain,” Modi said.

“The prime minister has said the GST roll-out will happen after next general elections. So, the Centre will have to compensate (for a cut in CST rates) for 2013-14, too,” Modi said.

Earlier, the Centre had agreed to pay states Rs 34,000 crore as CST compensation for 2009-10, 2010-11 and 2011-12. It had also agreed to either give partial CST compensation for this year or consider increasing the CST rate from two per cent to four per cent. However, in Budget 2013-14, the finance ministry had made a provision of Rs 9,000 crore as the first instalment of the compensation.

The Centre and states differ over the compensation. While the finance ministry says the revenue gain due to an increase in the floor rate of value-added tax by some states (from four per cent to five per cent) should be taken into account, states don’t agree.

Modi said, “What will be the formula to compensate, that issue is alive.” He said the parliamentary standing committee on finance, headed by Bharatiya Janata Party leader Yashwant Sinha, would give its recommendations on GST in a month.

It would take at least a year to roll out the GST network, he added. A committee on drafting the GST constitution Bill would be formed after the parliamentary panel gave its recommendations, he said. He said though no political party or government could obstruct GST, political uncertainties might delay its roll-out.