The Lok Sabha on Monday passed a Bill to phase out Central Sales Tax (CST) in four stages and eventually abolish it in three years.

Abolition of CST will pave the way for an integrated Goods and Services Tax (GST) which will be introduced by April 1, 2010, Finance Minister P Chidambaram said.

He said under the Taxation Laws (Amendment) Bill, CST is proposed to be reduced from 4 per cent to 3 per cent from April 1, 2007. The Bill seeks to amend the CST Act of 1956. It will go down from 3 per cent to 2 per cent from April 1, 2008, from 2 per cent to 1 per cent from April 1, 2009 and eventually abolished from March 31, 2010.

The package for compensation to states for revenue loss on this account shall consist of non-monetary as well as monetary measures, the minister said amid uproarious scenes in the House over the Nandigram issue.

Chidamaran said CST being an origin-based tax was inconsistent with VAT (value added tax) which was destination-based tax. He said CST results in cascading of tax (tax on tax) since it was not rebateable against VAT.

Under the Bill, it is proposed 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 rate applicable to declared goods.