New Delhi: Finance Ministry is likely to cut the central sales tax (CST) rate to 3 per cent from 4 per cent with effect from April 1 sources told CNN-IBN on Monday.
The rate cut was finalised by Finance Minister P Chidambaram and the Empowered Committee of State Finance Ministers prior to the Budget presentation on February 28. The package for compensation to states for revenue loss due to the CST phase-out would consist of non-monetary as well as monetary measures.
As a first step, CST will be reduced from four to three per cent beginning April 1 this year. It will go down from three to two per cent from April 1, 2008, from two to one per cent from April 1, 2009 and eventually abolished on March 31, 2010.
A bill was introduced in the Lok Sabha earlier to phase out the CST over a period of three years and bring it to zero by March 31, 2010. The abolition of the tax will pave the way for an integrated Goods and Services Tax, to be introduced from April 1, 2010.
The CST, being an origin-based tax, is inconsistent with value-added tax, which is a destination-based tax. The CST results in cascading, since it is not rebatable against VAT.
As the Budget is generally passed in May by Parliament, the CST rate cut is expected to happen from April 1 through a notification.