The Union Cabinet on Thursday approved a Rs. 7,029-crore package for States to compensate them for losses suffered by the reduction in the Central Sales Tax (CST) rate during 2010-11.

Of this, Rs. 3,000 crore is likely to be released in 2010-11 and the balance will be given in the next fiscal. An additional requirement of Rs. 3,000 crore for 2010-11 has already been included in the budgetary outlay, Information and Broadcasting Minister Ambika Soni told journalists after the Cabinet meeting chaired by Prime Minister Manmohan Singh.

The Cabinet approved “on account payment” of compensation to the States, pending finalisation of guidelines for revenue loss incurred by them in the current fiscal because of CST rates reduction.

The CST, a tax on movement of goods from one State to another, was reduced from 4 to 3 per cent in 2007-08 and further to 2 per cent in 2008-09 after the introduction of VAT, as it was considered distortional. The States have estimated the loss at Rs. 20,000 crore this fiscal on this account and are demanding reimbursement of the same.