New Delhi: Ahead of Budget, States on Tuesday asked Union Finance Minister Pranab Mukherjee to either fully compensate them for revenue loss due to reduction in the Central Sales Tax (CST) or raise the levy to 4 percent.
"Due to financial constraints, if the Government of India in not in position to continue to pay CST compensation to the States, then CST rate may kindly be restored to 4 percent from April 1, 2012," Empowered Committee of state finance ministers Chairman, Sushil Modi, said in a letter to Mukherjee.
Modi said Centre should release full CST compensation for the current and previous financial year.
While the states have demanded a compensation of Rs 19,060 crore for 2010-11, Modi said only Rs 6,393 crore has been released and many states like Gujarat, Madhya Pradesh, Nagaland and Uttar Pradesh have not received funds.
The pending claims of CST compensation for the earlier years should also be settled at an early date, he said.
"It would be extremely difficult for states to sustain the losses on account of reduction of CST rate," Modi said adding some states have already made budgetary provisions on this account.
Mukherjee will present the Budget for 2012-13 fiscal on March 16.
The letter assumes significance as the Centre has told states that no more compensation would be provided for phasing out of CST, which is payable on inter-state sales.
The Centre is trying to phase-out the CST and has promised to compensate the states for loss of revenue due to reduction in the CST rate to 2 percent, from 4 percent earlier.

States are of the view that the Centre should continue to compensate for CST loss till the ambitious Goods and Services Tax (GST) regime comes into effect.
Earlier this month, at a meeting of the empowered committee, states expressed their resentment over the Finance Ministry's refusal to compensate them for loss of revenue on account of reduction in CST from 2011-12 onwards.
On January 27, this year, the Finance Secretary R S Gujral told states that 2010-11 is the last fiscal year for CST compensation and no more of it would be released thereafter.
The rate of CST was reduced to 2 percent to pave way for introduction of GST with effect from April 1, 2010. The GST Bill is currently being scrutinised by a Parliamentary Panel and could become operational from April 1, 2013.
CST phase-out is part of the introduction of the new GST regime under which various levies like excise, service tax and states tax (like value-added tax, entry tax and purchase tax) would be subsumed into a single tax.