UTS Voice
| |
Giving states a share in service tax
By S Madhavan
India’s indirect tax system, comprising both the federal and state taxes, is inherently complex in nature. Apart from the complexity created through the multiplicity of taxes that are inherent in this structure, the aggregate incidence of indirect taxes is also exceedingly high thereby impacting aggregate consumption. Independently, the fact that these taxes are not offsets against each other result in cascading, thereby exacerbating the problem with attendant consequences on inflation.
The introduction of the value-added tax (VAT) has, therefore, indeed been a paradigm shift in the Indian indirect tax structure and perhaps the most remarkable fiscal reform since Independence. However, there still remains inconsistency relating to the manner of operation of the VAT on goods and services. As the VAT on goods is a state levy and the VAT on services, i.e. the service tax, is a central levy, and there is no agreed distinction between goods and services, the very problem of treatment of a particular transaction as both a supply of goods and a provision of service poses a considerable challenge to integrating the indirect taxation of goods and services. It is in this context that the discussion surrounding the ability of the states to tax services needs to be placed. The introduction of a Goods & Services Tax (GST) by April 1, 2010, has forced both the central government and the state governments to explore the most efficient way of integrating the taxation of goods and services. One such step is the complete phasing out of the Central Sales Tax (CST) effective from April 1, 2007, the CST has been reduced to 3 per cent from the prevailing rate of 4 per cent and a roadmap has been announced for its further reduction and complete phase out by the year 2010. As abolition of the CST would entail a significant loss of revenue to the states and indeed the phased reduction in the CST is a cause of concern, the states are seeking a suitable compensation package in return. Given the above background, the Centre has recently offered to compensate these states for the CST phase out by offering them the tax revenues arising from 33 of the existing services that are currently taxed by the Centre, as also the revenues from 44 new services that are proposed to be introduced.
The Empowered Committee of the State Finance Ministers, in its meeting at Srinagar, has identified five new services for the purpose of state taxation services provided by schools, doctors, hospitals, amusement parks, and coin operated amusement machines. It is understood that the Empowered Committee has cleared this proposal and that a Bill is likely to be introduced in Parliament to enable the aforesaid taxes to be brought into effect.
Next
| |
|
|
|
|
Other Top Stories |
| |
New Delhi: Dwarka, a suburb of Delhi, has emerged as the preferred location for... Full Coverage>> |
| |
Starving Kalkaji sisters snapped links with all ... Full Coverage>> |
| |
Dawood: Live but missing... Full Coverage>> |
| |
The much-touted plan was hailed as a way to rein in the killer Blueline buses ... Full Coverage>> |
| |
‘Elephant corridors in new NHAI projects... Full Coverage>> |
|
Previous Issue |
 |
|
|