Fragmenting markets

BS OPINION

 What is doubly unfortunate is that the government seems also to have given up on the move to reduce the central sales tax (CST) from 4 per cent to 2 per cent.

 The reason is simple: at Rs 14,000 crore per year, these collections comprise around a sixth of the sales tax collections of states, and are not easy to replace.

 While the Centre was to compensate states for the loss of CST, it was believed the amount would be low since states would gain from switching to VAT. Now that there is no VAT, there will be no cut in CST either.

 What is forgotten in these calculations is that the CST is an anachronism, introduced as a levy on inter-state sales (at around 4 per cent on an average if you have a