Compensation Sought for CST Loss

Dated 27th July, 2014

Finance Minister Pradip Kumar Amat said in the Assembly on 26.07.2014 that there should be some constitutional arrangement for compensating the States for loss due to reduction of Central Sales Tax (CST) rate from four per cent to two per cent.

Replying to a short notice question from Amar Prasad Satpathy (BJD), the Minister said as 115th Constitution Amendment Bill has been brought in Parliament there is a proposal to abolish Section 52 of Seventh Chapter of Constitution as per which the States are empowered to collect entry tax.

Amat said Centre proposes to introduce Goods and Services Tax (GST) by merging Value Added Tax (VAT), entry tax and entertainment tax to simplify the process. Amat said as per the decision of the Empowered Committee of finance ministers there was no proposal to merge entry tax with GST. But, the Centre has proposed to merge GST with entry tax in the 115th Constitution Amendment Bill. After the Bill is passed, the State Government cannot collect entry tax, he said.

Collection from entry tax was `1312.26 crore in 2011-12, `1342.54 crore in 2012-13 and `1613.45 crore in 2013-14, he said and added that collection of entry tax in 2013-14 was more than 12 per cent of all the commercial taxes raised by the State Government. The Minister said the Empowered Committee had entrusted National Institute of Public Finance and Policy (NIPFP) to determine the revenue neutral rate (RNR) after the introduction of GST.

The States had demanded that loss on account of merger of entry tax with GST should also be taken into consideration while determining the compensation amount.

Centre has proposed to compensate the states for three years after the introduction of GST, but the State Government has demanded that there should be permanent constitutional independent automatic compensation mechanism, Amat said.

Referring to the loss incurred by the State Government for reduction of CST, the Minister said Odisha has demanded that CST rate should be raised to four per cent again till the GST is introduced.

The State Government has also demanded imposition of green tax on minerals and ore-based products, he said.