Centre to compensate for Rs 7k cr CST loss to states

New Delhi, Feb 10 (PTI) The Government today approved Rs7,029 crore compensation to states for the losses theysuffered due to reduction in central sales tax (CST) rate in2010-11.

The Union Cabinet, chaired by Prime Minister ManmohanSingh, has approved a proposal for providing CST loss relatedcompensation to states incurred in the current financial year,Information and Broadcasting Minister Ambika Soni toldreporters after the meeting.

"The financial implication of this proposal is estimatedat approximately Rs 7,029 crore," Soni said adding that Rs3,000 crore are likely to be released in 2010-11, while thebalance of Rs 4,029 crore would be given in the next fiscal.

"An additional requirement of Rs 3,000 crore for 2010-11has already been included in the budgetary outlay..," sheadded.

The Cabinet approved the "on account payment" ofcompensation to the states, pending finalisation ofguidelines for revenue loss incurred by states in the currentfiscal because of reduction in CST rates.

CST, a tax on movement of goods from one state toanother, was reduced from 4 per cent to 3 per cent in 2007-08and further to 2 per cent in 2008-09 after the introduction ofVAT, as it was considered distortionary.

States have estimated the loss at Rs 20,000 crore thisfiscal on this account and are demanding reimbursement for thesame.