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`Phasing out CST is prerequisite for VAT'

Our Bureau

NEW DELHI, Sept. 12

THE abolition of Central sales tax is a prerequisite for putting in place an effective destination-based value- added tax, according to Dr Govinda Rao, Chairman of the erstwhile Service Tax Committee.

Dr Rao has now been appointed by the Finance Ministry to work out the implications of a gradual phase out of CST.

While favouring the abolition of CST, Dr Rao, however, said today he was not in favour of doling out huge compensation to States to make good the possible revenue losses on account of the phase out of CST. Revenues from CST top Rs 19,000 crore per annum.

"We can always look at other mechanisms for compensating States through re-aligning the existing systems. For example, States can play a larger role in the taxation of three additional excise duty (AED) items - tobacco, sugar and textiles,'' Dr Rao told Business Line on the sidelines at the Eleventh All India Tax Conference organised by Assocham here.

Dr Govind Rao will be submitting his report to the Finance Ministry by the end of this month. Besides analysing the economic efficiency of CST, Dr Rao's study would also assess the implications of a gradual phase out of this levy.

The implications of pruning CST from 4 per cent to 2 per cent would form part of the exercise. Further, the impact of zero rating of CST on income, price and tax revenues will also be analysed.

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