CST rate cut to 3% on track

The government will cut the central sales tax (CST) rate to 3 per cent from 4 per cent from April 1 through a notification, as announced by Finance Minister P Chidambaram in his Budget speech.

Contrary to reports, a finance ministry official said the CST rate reduction was on track and would happen as per schedule.

Meanwhile, Chidambaram's request to not refer the Taxation Laws Bill to the Parliamentary Standing Committee on Finance for scrutiny has been accepted by Lok Sabha Speaker Somnath Chatterjee.

Official sources said the FM met the Speaker to request that due to the time-bound nature of the CST phase-out, the Standing Committee route be bypassed. The request had been accepted, they added.

The Bill seeks to phase out the CST over a period of three years and bring it to zero by March 31, 2010. The abolition of the tax will pave the way for an integrated Goods and Services Tax, to be introduced from April 1, 2010.

"In any case, whether the Bill is sent to the Parliamentary Standing Committee or not has no bearing on the CST rate cut from April 1," a finance ministry official said.

As the Budget is generally passed in May by Parliament, the CST rate cut is expected to happen from April 1 through a notification.

The rate cut was finalised by Chidambaram and the Empowered Committee of State Finance Ministers prior to the Budget presentation on February 28. The package for compensation to states for revenue loss due to the CST phase-out would consist of non-monetary as well as monetary measures.

The CST, being an origin-based tax, is inconsistent with value-added tax, which is a destination-based tax. The CST results in cascading, since it is not rebatable against VAT.