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"Karnataka is concerned about the continuing uncertainty in settlement of states' pending compensation claims relating to CST revenue loss from 2010-11 onwards despite repeated requests from the states individually and collectively through Empowered Committee," said H C Mahadevappa, minister for public works.
Representing Karnataka on behalf of chief minister and finance minister Siddaramaiah at the finance ministers' conference convened by Jaitely in Delhi today, he said the government of India provided CST revenue loss compensation for the year 2010-11 only partially. For the subsequent years no compensation has been provided, he said.
As agreed by the government of India in February 2013, CST compensation for the years 2010-11, 2011-12 and 2012-13 should be released at 100%, 75% and 50% of the loss incurred by the states, at the earliest, Mahadevappa said.
For Karnataka, the estimated pending compensation amount is Rs 3,889 crore for all three years, with Rs 985 crore for the year 2010-11 alone.
"Overall, while conveying the support of government of Karnataka for implementation of GST, we request the Union Finance Minister to consider our concerns favourably. We also request that a time bound implementation plan may be announced in the Union Budget," he said.
He said Karnataka will support the re-revised Constitution Amendment Bill for implementation of GST. Several recommendations of the Empowered committee have been accepted. However, some major recommendations and concerns have not been considered.
Entry Tax in lieu of Octroi
"The proposal in the re-revised Constitution Amendment Bill regarding deletion of Entry Tax from the State List is contrary to the recommendations of the Parliament Standing Committee on Finance. The government of India seems to have made a selective interpretation of the recommendation of the Parliamentary Standing Committee on Finance," he said.
Quoting from the recommendation made by the Committee, he said, "The relevant clause / sub-clause in the Bill may be modified accordingly so as to empower the states to collect entry tax for distribution to local bodies instead of leaving it to be collected by different local bodies."
Accordingly, he said Entry Tax levied in lieu of Octroi should not be subsumed under GST as it would shrink the tax base of local bodies and also result in substantial higher Revenue Neutral Rate. Entry 52 should be amended to enable levy and collection of Entry Tax by the State for local bodies. In order to ensure that such as levy does not result in an open-ended additional tax burden adversely impacting inter-state movement of goods, the States may be allowed to invoke this provision by the government of India under Article 304 only on the recommendation of the GST Council and further subject to the condition that such levy shall not exceed 2%, he said.
"The government of India has suggested that the States should use the provision of the band allowed over the floor rate of GST to raise resources for allocation to the local bodies. The concept of floor rate and band has been agreed as an unconditional flexibility allowed to the States, and that should not be pre-empted as a mechanism for making up the loss of revenues to the local bodies due to abolition of Entry Tax," Mahadevappa added.
