The Centre and states, agreed for a joint mechanism to offset losses arising out of Central Sales Tax cut effected in 2007-08, a matter that has not yet been resolved due to differences on the amount of compensation.

The decision was taken at a meeting of states finance ministers and Union Finance Minister Pranab Mukherjee here. “There will be a joint mechanism (for compensation) involving Government of India officials and Empowered Committee Secretariat and states officials to facilitate the compensation more clearly,” Asim Dasgupta, chairman of empowered committee of states finance ministers on Value Added Tax, told after the meeting.

CST, a tax on movement of goods from one state to another, was reduced from 4 per cent to 3 per cent in 2007-08 and further to 2 per cent in 2008-09 after the introduction of VAT as it is considered distortionary.