"The introduction of Value Added Tax will be followed by gradual phase out of CST. In this context, Centre is planning to establish a regulatory frame-work in terms of TIES to give a comprehensive picture of inter-state trade of all commodities," Ramesh Chandra, member secretary, empowered committee of state finance ministers said in Mumbai.

The process of setting up of TIES has already been started by empowered committee and it is expected to be completed within one year, Chandra said.

"The position regarding CST will be reviewed by the empowered committee during 2005-06 and suitable decision on phasing it out will be taken," he said.

He said the CST would be two per cent in 2006-07 and would be gradually brought down to zero within three years.

However, states would be compensated for the financial losses as they are now collecting over Rs 15,000 crore (Rs 150 billion) every year from CST.

"States are very serious about implementing VAT within its schedule. Though phasing out CST is a time consuming process, the government is firm on abolishing CST in post-VAT scenario," he said.

He added the country needs a sound technology to adapt the taxation mechanism and the government is working on evolving such a system.