Govt introduces CST phase out Bill in Parliament

The government today introduced a bill in Lok Sabha seeking to phase out Central Sales Tax (CST) in four stages and eventually abolish it in three years.

Abolition of CST will pave the way for an integrated Goods and Services Tax (GST) which will be introduced by April 1, 2010.

Piloting the Taxation Laws (Amendment) Bill to amend the CST Act, 1956, Finance Minister P Chidambaram said in the first step, CST is proposed to be reduced from 4% to 3% from April 1, 2007.

It will go down from 3% to 2% from April 1, 2008, from 2% to 1% from April 1, 2009 and eventually abolished on March 31, 2010.

The agreed package for compensation to States for revenue loss on this account would consist of non-monetary as well as monetary measures, the Minister said in the statement of objects and reasons in the bill.

Chidamaran said CST being an origin-based tax was inconsistent with VAT which was destination-based tax. He said CST results in cascading of tax (tax on tax), since it was not rebateable against VAT.

As per the terms of the bill, it is proposed to drop tobacco from the list of declared goods to enabe the States to levy VAT on tobacco at a rate higher than the 4% rate applicable to declared goods.