Commercial Taxes and Registration Minister B.V. Ramanaa on Thursday pressed for payment of Goods and Services Tax (GST) compensation for every year for a period of not less than five years through an independent mechanism, citing unpleasant experience in the past.

Addressing a meeting convened by the Finance Minister and Chairman of the Empowered Committee, P. Chidambaram, in New Delhi, to seek approval of State Finance Ministers on design of GST, he said Tamil Nadu’s experience was not so pleasant when it came to claiming its legitimate compensation due to it from the Centre, be it Value Added Tax compensation or Central Sales Tax (CST) compensation.

“We have been subjected to unilateral changes in the method of calculation and the formulae to be adopted for arriving at the compensation amount. The Centre should ensure the States would be entitled for 100 per cent GST compensation, even if they were to join the GST regime at a later date, he said.

Mentioning that loss to the States due to reduction in CST rate was unacceptable, he said “For 2011-12 and 2012-13, 100 per cent compensation should be paid. It is unlikely that GST would be rolled out soon. Hence, we propose that from the year 2013-14 onwards also either 100 per cent compensation should be sanctioned to the States or the CST rate should be restored to 4 per cent.”

Mr. Ramanaa said it would be advisable to chart out a detailed plan prescribing various timelines for various milestones, instead of prescribing single date for introduction of GST. Besides, the States should be taken into confidence on each of these aspects, without which such a major tax reform may not succeed.

While expressing the concerns of the State to certain aspects of GST, he said the newly constituted Committee on GST Design should work out the details of the tax rates and bands to be adopted; come out with a viable solution to the problem of dual control.

Strongly opposing the enactment of model GST law by the Parliament, Mr. Ramanaa said “We would rather go by the past experience in implementation of VAT and prefer that a model law should be prepared and such law should be left to be adopted by the States voluntarily.”

Items such as petroleum crude, high speed diesel, petrol, natural gas, aviation turbine fuel and alcoholic liquor meant for human consumption should be kept outside the purview of GST. However, if they were to be brought under GST, then provisions had to be made in the Constitution to enable States to levy tax over and above GST on these products, he said.

Similarly, tobacco and tobacco products should be either kept outside the purview of GST or the States should be given the powers to levy tax over and above GST. Entertainments tax collected for Local Bodies by State government should also not be subsumed in GST, he said.