The state governments have urged the Centre to continue levying central sales tax (CST) for the first few years as it will provide some comfort in terms of protecting revenue and fiscal autonomy. This demand came after the union government proposed a three-rate structure for the goods and services tax(GST) last week.
CST is levied on the inter-state movement of goods and was cut from 4% to 3% from April 1, 2007, and then to 2% in 2008. As part of the implementation of value-added tax (VAT) it was to be reduced by 1% every year and made nil by April 2011, but it has not been cut further. Although it is called the Central Sales Tax, the tax collected under the CST Act is kept by the state. Experts are of the opinion that as CST is an origin-based tax, continuing with it may create problems because GST is a destination-based tax.
The Centre has earlier announced that it would provide full compensation to the states for any revenue loss on account of CST reduction in 2009-10 and release the balance outstanding amount immediately.