4, 3, 2, 1, 0: Bill starts countdown for GST

NEW DELHI: The government on Friday introduced a Bill in the Lok Sabha seeking to phase out the central sales tax (CST) in four stages and to eventually abolish it within three years. Abolition of CST will pave the way for an integrated goods and service tax (GST), which will be introduced by April 1, 2010.

Piloting the Taxation Laws (Amendment) Bill to amend the CST Act, 1956, finance minister P Chidambaram said that in the first step CST is proposed to be reduced from 4% to 3% with effect from April 1, 2007.

It will go down from 3% to 2% from April 1, 2008 and from 2% to 1% in 2009 till it is eventually abolished on March 31, 2010. The agreed package for compensation to states for revenue loss on this account would consist of non-monetary as well as monetary measures, the minister said in the statement of objects and reasons in the Bill.

Mr Chidamaran said that CST being an origin-based tax was inconsistent with the value added tax (VAT), which is a destination-based tax. He emphasised that CST has a cascading effect on the tax (tax on tax) since it is not rebateable against VAT.

The Bill has proposed to drop tobacco from the list of declared goods to enabe the states to levy VAT on tobacco at a rate higher than the 4% rate applicable to declared goods. The additional duties of excise (Goods of Special Importance) Act 1957 is proposed to be amended to drop tobacco from the first schedule of the Act. This will enable states to levy VAT on tobacco without losing their share of 1% devolution from the Divisible Pool of Central Taxes.