States must take reform steps for GST: Shome

States will have to take various reform measures to pave the way for the Goods and Services Tax (GST) that is proposed to be introduced from 2010, a senior government official said today.

"At the moment the issue of discussion between the State and the Centre is compensation for Central Sales Tax (CST)... states might have to undertake reforms within the system," Parthasarthy Shome, Adviser to Finance Minister P Chidambaram, said on the sidelines of a seminar on service tax.

While state governments feel revenues from CST should not be linked to the gains of state-level Value Added Tax (VAT), the Centre feels some areas could be interlinked, Shome said.

CST revenues are about Rs 20,000 crore, while collections from VAT are growing at a rate of 20%, he said.

"States may have to take non-monetary measures and reforms within the system, while the central government may compensate with monetary measures," he said.