Mumbai: The central and state governments have arrived at a consensus that the central sales tax (CST) should be phased out in four phases - reducing the rate from 4 per cent to 3 per cent with effect from April 1, 2007, from 3 per cent to 2 per cent from April 1, 2008, from 2 per cent to 1 per cent from April 1, 2009 and eventually abolishing the tax by March 31, 2010.

A package of compensation to the states for revenue loss on account of phasing out of the CST has also been agreed upon between the states and the central government, minister of state for finance S.S. Palanimanickam informed the Lok Sabha.

As per the agreed package, the states shall be compensated through a combination of non-monetary and monetary measures. During 2007-08, the measures to compensate the states for CST reduction would include abolition of Form-D, levy of VAT on Tobacco at 12.5 per cent by states and transfer of total proceeds of tax on identified services to the states.

In case these measures prove inadequate to fully cover the loss, budgetary support shall be given.

Taxation Laws (Amendment) Act, 2007 has been enacted, whereby the CST Act, 1956 and the Additional Duties of Excise (Goods of Special Importance) Act, 1957 have been amended, inter alia, resulting in the reduction of rate of CST on inter-state sale to registered dealers (against Form-C) from 4 per cent to 3 per cent with effect from April 1, 2007.

The facility for inter-state purchases by government departments at concessional CST rate against Form-D has been withdrawn, enabling states also to levy VAT on tobacco. Further, a provision of Rs2,500 crore has been made in the department of revenue budget for 2007-08 for releasing CST compensation to the states, he said.

also see : General reports on Economy