States seek CST phase-out damages

State governments today asked the Centre to compensate them fully for revenue losses of over Rs 9,000 crore on account of the proposed cut in central sales tax (CST) from 4 to 2 per cent.

"The empowered committee has decided that CST will be reduced, but there is a pre-condition that the Centre should provide full compensation. We discussed ways to compensate states," VAT panel Chairman and West Bengal Finance Minister Asim Dasgupta said after a meeting of the committee with Finance Minister P Chidambaram to chalk out a strategy for phasing out CST from April.

Dasgupta did not reveal details of the options that the Centre and states were exploring for the compensation package on account of the ongoing Budget exercise.

The VAT panel will meet Chidambaram in mid-March again to thrash out the details of the compensation package, he added. States now collect about Rs 18,000 crore in CST, which is passed on to them by the Centre.

The VAT panel has made it clear that the Centre has to factor in not only the current collection levels of CST but also future growth before deciding on the compensation.