Mumbai: The government has introduced a bill in the Lok Sabha seeking to phase out central sales tax (CST) and eventually abolish it in three years. Once the CST is abolished it will be replaced by an integrated goods and services tax (GST).

A bill for the integrated goods and services tax (GST) will be introduced by April 1, 2010.

Piloting the Taxation Laws (Amendment) Bill to amend the CST Act 1956, finance minister P Chidambaram said the CST would be abolished in four phases.

As a first step, CST will be reduced from four to three per cent beginning April 1 this year. It will go down from three to two per cent from April 1, 2008, from two to one per cent from April 1, 2009 and eventually abolished on March 31, 2010.

The center has agreed to on a compensation package to states for revenue loss on this account, consisting of both monetary and non-monetary, he said.

A provision of Rs2,500 crore has already been made in the 2007-08 budget. The total revenue loss due to the one per cent reduction in the CST in 2007-08 is estimated at Rs6,350 crore, which would go up in the following years.

CST being an origin-based tax was inconsistent with VAT, which was a destination-based tax, Chidambaram said, adding, this results in cascading of taxes, since it was not rebateable against VAT.

Under the bill, it is proposed to drop tobacco from the list of declared goods to enable the states to levy VAT on the commodity at a rate higher than four per cent applicable to declared goods.