Compensation to terminate CST by 2010
Compensation to terminate CST by 2010 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% to 3% with effect from Apr. 1, 2007, from 3% to 2% from Apr. 1, 2008, from 2% to 1% from Apr. 1, 2009 and eventually abolishing the tax by Mar. 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. The compensation will be through a combination of non-monetary and monetary measures. Abolition of Form-D, levy of VAT on Tobacco @12.5% by States and transfer of total proceeds of tax on identified services to th e states will be included in the measures during 2007-08. In case, these measures prove inadequate to fully cover the loss, budgetary support shall be given. Further, a provision of Rs 25 billion has been made in the department of revenue budget for 2007-08 for releasing CST compensation to the states.
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