Sales tax phase-out deferred to April

Official panel on Value Added Tax decided to defer the phase out of the Central Sales Tax from next month to April 2007 after its failure to arrive at an agreement with the Union Government on the compensation package for states to meet the revenue loss due to reduction in CST.

The CST, imposed on inter-state trade of goods, was originally scheduled to be phased out from the beginning of the current fiscal from the present level of four per cent to two per cent, but its reduction was diluted to three per cent and timing deferred to October 1.

Now again, the empowered committee of state finance ministers decided to postpone the phase out to the next fiscal and the reduction is scheduled to be restored to two per cent as was originally planned.

"CST and VAT cannot co-exist. CST has to go subject to full compensation package for loss to states on account of CST phase out being agreed upon by union finance ministry. Unfortunately, a consensus could not be reached," Asim Dasgupta, chairman, Empowered Committee said, announcing that CST phase out has been deferred to next fiscal.

However, CST is scheduled to be reduced to 1 per cent during 2008-09 and then entirely removed during 2009-10, Dasgupta said after five-hour long meeting of the panel.

There would be review of CST phase out before reducing it to one per cent during 2008-09, he said.

The fate of CST phase out has been hanging in balance with the states and the Centre not agreeing to common compensation package despite the fact that CST is not in accordance with the VAT structure.