Special Correspondent

NEW DELHI: As promised earlier, the phase-out of the Central Sales Tax (CST) will begin on April 1 with a reduction from four to three per cent in States where the value added tax (VAT) regime in lieu of ST is in force.

The phase-out was considered necessary in the wake of the new tax regime as the two levies contradict each other. While CST imposes a tax on inter-State sale of goods, the VAT regime tends to create a uniform tax structure across all States.

Compensation

Finance Minister P. Chidambaram, who announced the cut in CST in his budget presentation on Wednesday, allocated Rs. 5,495 crore for compensating the States for likely losses in revenue owing to VAT implementation as also the reduction in CST in phases.

As per the agreement reached with the Empowered Committee on VAT, a portion of the loss arising from CST reduction pegged at Rs. 6,000 crore next fiscal, will be met by transferring the entire collections from tax on 33 services to the States.

Now they receive 30.5 per cent.

Empowering States

Alongside, the Centre is supposed to empower the States to levy tax on 44 local services, though a final agreement is yet to be worked out. Starting April 1, 2010, the Centre, it is envisaged, will move to a combined Goods and Services Tax (GST) to create a common market.

Mr Chidambaram said the States already agreed to work with the Centre in preparing a roadmap for introducing GST.