Indian CST Phase Out To Begin In April

by Lorys Charalambous, Tax-News.com, Cyprus

26 February 2007

The Indian Cabinet has given its approval for initiating the process of phasing out the Central Sales Tax (CST), beginning with a reduction in the CST rate from 4% to 3% from April 1, 2007.

According to a Cabinet statement, this cut will mark the beginning of the process of a "very significant" tax reform measure, which is critical for the success of VAT and for the introduction of GST in the future. The move will also facilitate the process of developing a National Common Market, it stated.

The Cabinet added that it has taken the necessary non-monetary and monetary moves for the purpose, and is making the necessary amendments to the Central Sales Tax Act, 1956, and the Additional Duties of Excise (Goods of Special Importance) Act, 1957. A Taxation Laws (Amendment) Bill, 2007 will be introduced in the coming session of Parliament.

The CST will be cut by one percentage point every year for the next four years, until its elimination in the 2010/11 fiscal year. The government plans to compensate state governments for loss of revenues as a result of the phase out of the tax, and the states will receive a 100% share of revenues on at least 33 services, up from the current level of 30.5%. The central government has also agreed with the states that a further 44 services will be taxed. Additional duties will also be levied on other items such as tobacco to ease the transition.

A 1% cut in CST is expected to lead to lost revenues of around R62.5 billion (US$1.4 billion).

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