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Finance Minister Arun Jaitley moves to break Goods and Services Tax deadlock

Saturday, 31 May 2014 - 7:35am IST | Place: New Delhi | Agency: dna

To expedite Rs 50,000 crore payment to states on compensation for central sales tax cuts

Within hours of Prime Minister Narendra Modi directing his Cabinet ministers to handle the concerns of the state governments with utmost sensitivity, finance minister Arun Jaitley has asked the revenue department to expedite payment of Rs 50,000 crore due to the states in form of compensation for the central sales tax cut.

Also, as a part of renewing talks on Goods and Services Tax (GST) with states, Jaitley has also directed that state governments be given a commitment that revenue loss incurred by them due to implementation of GST will be borne by the Centre for the first 2-3 years.

Finance ministry officials said Jaitley has entrusted revenue secretary Rajiv Takru with the responsibility of addressing the deadlock over the GST with the empowered group of state finance ministers. Jaitley will meet the state finance ministers in the third week of June to take forward the GST talks.

A senior ministry official told dna, "Jaitley has issued the directives to the concerned department to give a commitment to the state governments that they will be compensated for any revenue losses in the initial years post the rollout of GST. He has asked to expedite CST compensation payment to the states."

A roadmap for a staggered payment will be chalked out soon by the ministry.

The CST tussle has been brewing between the Centre and states for a long time now and has emerged as a major hurdle in the GST rollout. It was agreed between the Centre and the states that the central sales tax will be reduced by 1% every year from 2007 and will be eliminated by April 2010, the expected deadline for the GST rollout. The revenue lost by the states, meanwhile, has not been paid to them since 2010. It is this olive branch that Jaitley wants to use to bring the states back on the negotiating table.

The other issues that are causing hurdles in the GST rollout are some of the state governments' unwillingness to subsume the entry tax, petroleum and alcohol in the GST. These issues will be discussed in the June meeting with state finance ministers.

GDP growth for FY14 at 4.7%, fiscal deficit at 4.5%
India's economy grew less than 5% for a second quarter, adding pressure on Prime Minister
Narendra Modi to spur investment after winning the strongest electoral mandate in 30 years.
Gross domestic product rose 4.6% in the three months ended March from a year earlier, unchanged from the previous quarter, the Central Statistical Office said. GDP expanded 4.7% in the full fiscal, compared with the previous period's decade-low 4.5%. Fiscal deficit in the last fiscal was Rs 5.08 lakh crore, or 4.5% of the country's gross domestic product, narrower than 4.9% a year earlier.

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