Centre includes compensation in GST Constitutional Amendment Bill

The Centre has included in the GST Constitutional Amendment Bill the compensation which will be paid to states for revenue loss on account of rolling out the new indirect tax regime, Parliament was informed.

To a written question on whether the compensation in GST has been incorporated in the Constitutional Amendment Bill, Minister of State for Finance Jayant Sinha said: "Yes".

Elaborating further, he said that as per the provisions of the Bill, Parliament may  on the "recommendation of the GST Council, provide for compensation to the states for loss of revenue arising on account of implementation of the GST for such period which may extend to five years".

The Bill was introduced in the Lok Sabha on December 19. While liquor has been completely kept out of the GST, petroleum products like petrol and diesel will be part of the new regime from a date to be decided at a future date by the GST Council, which will have two-third of its members from states.

The Goods and Services Tax is proposed to be rolled out from April 2016. As part of the proposed GST regime, the CST is being phased out and its rate has been reduced to two per cent from four per cent. The Centre collects CST and distributes it among states.

The Centre has agreed to compensate states for losses they have incurred due to CST phase out. As per the agreement, 100 per cent compensation is to be paid for 2010-11 fiscal, 75 per cent for 2011-12 and 50 per cent for 2012-13.

The CST, a tax imposed on the inter-state movement of goods, was reduced from 4 per cent to 3 per cent in 2007-08 and further to 2 per cent in 2008-09 after the introduction of value-added tax (VAT).