Tamil Nadu chief minister J Jayalalithaa Saturday said the central government is being unreasonable with regard to compensating states for the loss of their revenue due to reduction of central sales tax rates last fiscal.
In a letter to Prime Minister Manmohan Singh, she said non-implementation of the Goods and Service Tax (GST) from April 1, 2010, should not be the ground for stopping Central Sales Tax (CST) compensation to states, whose revenue loss is "substantial and permanent".
West Bengal chief minister Mamata Banerjee Wednesday sent a letter to the prime minister protesting the central government's "unilateral decision" not to pay CST compensation to states for 2011-12.
Jayalalithaa said: "I wish to draw your attention to certain outstanding issues regarding compensating States for the loss in revenue on account of reduction of the rate of Central Sales Tax (CST) for 2010-2011 and the subsequent years. The Chairman, Empowered Committee of State Finance Ministers, has already conveyed the objections of the State Governments, including Tamil Nadu. But it is unfortunate that the Government of India is still sticking to its unreasonable stance."
She said though the central government had agreed to compensate the states for the revenue loss for 2010-11, the compensation rate was arbitrarily restricted by deducting the additional revenue realized through the revision of Value Added Tax (VAT) rate from four percent to five percent.
"I would like to point out that the action of the Government of India in linking CST compensation with the additional revenue on account of VAT rate revision is unilateral, arbitrary and untenable. There is no link between CST rate reduction and VAT rate enhancement. It was never a part of the guidelines for CST compensation," Jayalalithaa said in her letter, the text of which has been released to the media.
Objecting to the central government's decision to stop CST compensation from 2011-12, Jayalalithaa said: "The CST rate was reduced only as a precursor to the introduction of Goods and Service Tax (GST). Since it is the Government of India's responsibility to introduce GST by evolving a consensus and by putting in place appropriate mechanisms, the States cannot be expected to bear the loss on account of its failure to introduce GST."
She said it was the central government's moral responsibility to compensate states till GST is introduced and states like Tamil Nadu are suffering a huge revenue loss on account of the CST rate reduction.