New Delhi, Jan. 3: A meeting of the empowered committee on value-added tax (VAT) today decided to delay phasing out of central sales tax (CST) by one more year, pushing back the schedule to the next financial year.

CST, at 4 per cent now, is likely to be reduced by one percentage point every year starting April 2007, so that it gets eliminated by 2010-11.

As compensation for the loss of revenue from the phasing out of CST, states are likely to get the entire proceeds from the tax on 33 services being levied by the Centre as well as from the proposed 44 services.

“I am happy to report that a broad consensus has been reached on the issue of phasing out CST,” finance minister P. Chidambaram told newspersons after a meeting with the empowered committee of state finance ministers on VAT.

“It (the central sales tax phase-out) may start from April 1, 2007 on the basis of full compensation package to states,” VAT panel chairman and Bengal finance minister Asim Dasgupta said.

Dasgupta, however, added that the CST phase-out will be reviewed periodically to ensure that the package of compensation remains in full.

Delhi finance minister A.K. Walia said the states have reached a broad agreement on the issue.

Chidambaram said the government has agreed to make the changes in legislation to phase out CST and offer compensation to the states.

If necessary, the Centre will give budgetary support. CST is estimated to generate more than Rs 25,000 crore next fiscal, and if the tax is reduced by one percentage point, the states are likely to lose about Rs 6,250 crore. The Cabinet has to clear the proposals on CST reduction and compensation package, official sources said.

The Centre’s service tax collections have increased 63.87 per cent between April and October 2006 to Rs 16,894.54 crore compared with Rs 10,310 crore collected in the same period of the previous year.

Analysts see it as the fastest growing revenue impost. The states currently get 30.5 per cent of all central tax collections, including service tax.