The empowered committee of state finance ministers today met in Bhubaneshwar. After the meeting, the committee head Sushil Modi said that states have agreed to adopt the 2008 model for CST compensation, but with riders. The central government will have to fork out Rs 34,000 crore as compensation to states, reports Aakansha Sethi of CNBC-TV18.

A sub-committee had been set up by the finance minister of officials from the state and central governments and they have recommended a formula whereby they say that there should be 100 percent central sales tax (CST) compensation for 2010-2011, 75 percent for 2011-2012 and 50 percent for 2012-2013.

The states have said that there should be 100 percent compensation and including arrears they have for Rs 34000 crore. Considering that CST compensation had already been settled the empowered committees agreed to this but the finance minister also needs to give his final approval to this because the government is fiscally constraint at this point in time. It remains to be seen if that Rs 34000 crore will be given. It could be a carrot that could be used to convince the states to cone on board, of the record many state finance ministers said that several states are still opposing to good and services tax (GST). The conversation will happen tomorrow. Today, CST compensation was discussed. Tomorrow the report of the committee on the GST structure will be discussed and there is a big question mark on if states will agree to that because the finance minister had said that he would outline GST in the Budget, only if the states were onboard.

Sushil Modi, Head, GST Panel, says that the central government will give compensation to the states for 2010-2011, 2011-2012 and 2012-2013. The compensation will be given for three years on the basis of the guidelines issued on August 22, 2008. Already Rs 6000 crore has been given to the state governments. The states have claimed, but after verification of that claim we will arrive at the final figure. A tentative figure of about Rs 34000 crore will have to be given as compensation to the states for these three years.

All eyes are on tomorrow, whether the states will agree to the GST structure that the committee has recommended, and if it will be in line with what has been suggested in the constitutional amendment because it is already with the standing committee and if it has to go back to the drawing board once again it could delay GST to 2017-2018 which some experts are now predicting.