The states will meet Finance Minister Pranab Mukherjee to discuss the proposed Goods and Services Tax (GST) tomorrow, a few days after differences cropped up between North Block and the states over the rate structure of the proposed new indirect tax regime.
The states finance ministers will also take up the issue of compensation to them to meet the losses on account of reduction in Central sales tax, which is levied on inter-state movement of goods.
"We will meet the Finance Minister tomorrow to discuss the contours of GST and the compensation due to the reduction in the CST rates," a source in the Empowered Committee of State Finance Ministers said today.
The GST, aimed at replacing most of the indirect taxes such as the excise and service tax, and state taxes like VAT and octroi, was earlier scheduled to be implemented from April 1, 2010. But now it is almost clear that its introduction would be delayed.
States like Madhya Pradesh, Rajasthan, Tamil Nadu and Gujarat have already called for delaying the introduction from its scheduled date of April 1.
The Revenue Department has also opposed the two rate structures for goods under the new tax regime.
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"There should be a single rate of SGST (state GST). A two rate structure of goods would pose problems," said the Revenue Department in its comments on the GST discussion paper by the Empowered Committee of State Finance Ministers.
The Empowered Committee of State FMs had proposed two rates for goods, besides special rates for precious metals.
The Revenue Department has also objected to keeping alcoholic beverages, some petroleum products and purchase tax out of the GST purview.
At the tomorrow's meeting, the states finance ministers will also discuss compensation to them to make up for losses due to cut in the CST rates once the GST is implemented.
The CST is levied on inter-state movement of goods and was cut from 4 per cent to 3 per cent from April 1, 2007 and then to 2 per cent in 2008. The CST would have to be abolished before the introduction of GST.
While the total compensation package for the states works out to be Rs 14,000 crore for the current fiscal, Rs 5,000 crore will be paid out of the total transfer of proceeds from tax on 33 services to the states. This would leave Rs 9,000 crore to be paid in compensation to the states.
The Finance Ministry wants that the states take up 50 per cent of this compensation and rest will be paid later as arrears, since the slowdown has put pressure on its finances.