State governments have finally agreed to accept a lower amount of compensation from the central government than demanded, for covering the loss arising due to phasing out of the Central Sales Tax (CST).

The state governments agreed for a lower payment of Rs. 34,000 crore as compensation, thus concluding the longstanding dispute that has been a major obstacle in the implementation of the Goods and Services Tax (GST).

Bihar's finance minister Sushil Kumar Modi said, "The amount of compensation for three years - 2010-11, 2011-12 and 2012-13 - was about Rs. 34,000 crore. The Centre has agreed to pay this compensation amount to states."

Under the new agreement, the central government will compensate 100 per cent of the loss suffered by the states in 2010-11 financial year for lowering CST. It will bear 75 per cent of the loss for 2011-12 fiscal year and 50 per cent for 2012-13 fiscal year.

The CST, which is a tax imposed on the inter-state movement of goods, was reduced from 4 per cent to 3 per cent in 2007-08 and further to 2 per cent in 2008-09 as the Value-Added Tax (VAT) was imposed.