States to be fully compensated for GST: Pranab

States to be fully compensated for GST: Pranab

Finance minister Pranab Mukherjee on Saturday assured the states that the Centre will fully compensate them on possible losses arising from implementation of the goods and services tax (GST) regime.

"No state would be allowed to suffer any loss and would be fully compensated by the Central government," he said at a meeting of the National Development Council in New Delhi, attended by most of the state chief ministers.

Mukherjee, earlier this week, had proposed a three-tier structure for the new indirect tax regime--20 per cent for goods, 16 per cent for services and 12 per cent for essential items.

As per the formula, the Centre and the states will equally share the revenue.

The Centre had already discussed the draft constitutional amendment bill with the state finance ministers.

"The Centre alone can't get it implemented as it requires constitutional amendment for which a large political consensus is required among major political parties," he said.

The 13th Finance Commission it its recommendations had asked the Centre to set aside Rs 50,000 crore to compensate the states for the possible revenue loss from GST rollout.

As part of the tax reform, the government proposes to introduce GST, which will subsume levies like excise, service tax, VAT and local levies like octroi etc from April 1, 2011.

GST was earlier scheduled to be implemented from April 2010, but could not do so because the Centre and the states failed to arrive at a consensus primarily on the tax rate and the quantum of compensation to the states for any possible revenue loss on account of this new indirect tax regime.

Mukherjee solicited support from all political parties for evolving a consensus on the various issues concerning the GST proposals.

Meanwhile, the chief ministers of BJP-ruled states on Saturday raised concerns about autonomy saying the new tax regime should not curtail their power to levy taxes.

"The GST rate (proposed by the Centre) should be treated as the floor rate without limiting the autonomy of the states," Karnataka chief minister BS Yeddyurappa said while addressing the NDC meeting.

Describing GST as important step to mobilise resources, Prime Minister Manmohan Singh in his address to the NDC sought cooperation from chief ministers in implementing the new tax regime.