New Delhi: Finance minister Pranab Mukherjee said his ministry will try to work out a way to increase compensation to states for lowering central sales tax (CST) in a bid to avoid an impasse that may derail implementation of the goods and services tax (GST).

The central government has an open mind on the issue and offered to enter into a dialogue with states, Mukherjee said, responding to a question in Parliament on Tuesday.

Opening channels: Finance Minister Pranab Mukherjee says he will sit with the states to work out a compensation plan for revenue losses. PTI

Lawmakers across party lines raised the issue of the central government’s refusal to compensate the states in Parliament.

Relations between the Centre and the states have worsened after finance secretary R.S. Gujral wrote to states in January that with the implementation of GST getting indefinitely delayed, states will not be compensated from FY12 and the payout for the previous fiscal will be restricted to the amount that had already been given.

States opposed the move and said it will put at risk the implementation of GST, one of the most ambitious tax reforms planned by India.

The implementation of GST will mean the levy of a uniform tax rate across the nation, effectively turning it into a common market.

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Mint’s Remya Nair says that finance minister Pranab Mukherjee is offering statesadialogue on CST compensation in an attempt to keep plans for the goods and services tax on track

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As part of the transition to GST, states had cut CST to 2% from 4%, leading to the gradual phase-out of the tax, with the central government compensating states for the revenue forgone.

The states had sought compensation of 19,000 crore for 2010-11, of which the Union government released only 6,393 crore to 13 states. In the budget for 2012-13, the Centre has made a provision of 300 crore towards CST compensation.

“It is a positive signal by the Central government. But it should be backed by actual actions. They should be able to reach a consensus and the compensation should meet the states’ expectations," said Bipin Sapra, tax partner at Ernst and Young.

Responding to concerns over the introduction of General Anti-Avoidance Rules (GAAR) in the budget, Mukherjee said the government will examine and modify the provision, ostensibly aimed at cracking down on tax cheats, “as and when required."

“The recommendations of the parliamentary standing committee on finance on GAAR will be looked into," he said.

The standing committee had expressed concerns over the possible abuse of GAAR and had suggested safeguards against its misuse.

Mukherjee also said the government is considering the demand of jewellers for removal of excise duty on unbranded jewellery. The finance ministry will try to come out with an acceptable solution, he said. Mukherjee ruled out the reduction of import duty on gold and platinum.

remya.n@livemint.com

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