The Lok Sabha today passed a Bill to cut Central Sales Tax (CST) by one percentage point annually, starting from April 1 this year.
The CST rate will be reduced to 3 per cent from 4 per cent in 2007-08 and will be phased out by March 31, 2009.
The government aims to merge the goods and services levies into a single goods and services tax (GST) by 2010.
"The CST phase-out is a pre-requisite for the GST to roll out by 2010," Finance Minister P Chidambaram said in Parliament today.
The Bill has to be passed by the Rajya Sabha and then receive the President's approval before becoming a law.
The CST is levied by the central government, but the collections are passed on to states. State governments have been demanding the abolition of the CST, as it has led to a distortion in tax administration after the value-added tax (VAT) was introduced two years ago.
The CST, being an origin-based tax, is inconsistent with VAT, which is a destination-based tax. It results in cascading, since it is not rebatable against VAT.
The agreed package for compensation to states for revenue loss due to the CST phase-out will consist of non-monetary as well as monetary measures.
Source :  Business Standard