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New Delhi March 9 The Finance Minister, Mr P. Chidambaram, on Friday introduced a Bill in Lok Sabha that would pave the way for reduction of central sales tax (CST) from 4 to 3 per cent from April 1 and further reduction by 1 per cent every year so as to abolish the tax on March 31, 2010.

The Taxation Laws (Amendment) Bill 2007 also seeks to amend the Central Sales Tax Act to enable the Centre to drop "tobacco" from the list of "declared goods" to enable the States to levy VAT on tobacco at a rate higher than 4 per cent applicable to declared goods.

The Bill also seeks to amend the Additional Duties of Excise (Goods of Special Importance) Act, 1957 to enable the States to levy VAT on tobacco without losing their share out of the 1 per cent devolution from the divisible pool of Central taxes.

The total revenue loss due to 1 per cent reduction in CST rate is estimated at Rs 6,350 crore during 2007-08, which will increase with further reduction in CST rate in the following years.

The agreed package for compensation to the States for revenue loss on account of phasing out of CST consists of non-monetary measures as well as monetary measures. For this purpose, a Budget provision of Rs 2,500 crore has been proposed for the year 2007-08 for release of grant-in-aid to the States on this account.

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