State FMs back report on compensation for phasing out CST

The empowered committee of state finance ministers on value added tax (VAT) today endorsed the technical committee report of sales tax commissioners for a compensation package in lieu of phasing out central sales tax (CST).

The report, which will be submitted to the Finance Minister shortly, suggests reducing CST from 4% to 3% from 1 October, 2006.

The reduction, which will lead to a revenue loss of Rs 2,500 crore for the states, is, however, contingent to the central government agreeing to the compensation formula suggested by the technical committee.

The committee has recommended that 68 services, which are intra-state nature, be transferred to the states, and increase the devolution share from service tax proceeds to 50% from the current level of 30.5%.