There is currently a debate as to the relevance and appropriateness of these proposed taxes in so far as they relate to education and medical care. It is a fact that these two sectors were not taxed till date by either the central or the state governments in any meaningful manner given their centrality to public policy and health. These sectors were clear understood as providing social go ids and services. The point is, therefore, whether the move to bring. These sectors into service taxation are at all something that the states would welcome. However, an appropriate and relevant definition of social goods and services is equally required so that an exemption from a tax is limited to only the identified consumers of such appropriately defined goods and services. For instance, serve from tax. It could be argued that given the paucity of public schools of adequate quality, private schools do indeed play a legitimate role in fostering education at large, and an entirely similar argument can perhaps be made in relation to the threshold level of college fee as well.

A similar discussion is currently on in relation to taxation of medical care. The idea that medical care is increasingly a differentiated product and that the states cannot continue to exclude the entire health care sector from taxation is very much the background to the discussion. No blanket exemption from tax for health care can any longer be made. The Empowered Committee indicates that imposed on common education, not understood to require any particular dispensation, under service tax for quite some time now. A similar thought process appears to be behind the idea of extension of the service tax to more areas of education. In other words, it is the Empowered Committee’s proposal to only tax the educational services provided by private schools and to college fees of Rs 1000 and more per month. Thus, the question is whether the education services provided by private schools and the threshold level of college fee for service taxation are appropriate means of excluding them from the purview of public services and hence eligible for an exemption el will be introduced in a manner that will not affect the health care needs of the common man.

It is as yet unclear as to how the healthcare sector segmentation will take place so that the tax is limited only to those services which are consumed by sections of society which can bear the tax.An entirely different point, and a more fundamental one, is whether the extension of services taxation at the state level, as a means of compensating the states for revenue losses arising from the CST discontinuation, is at all required at this juncture prior to the introduction of the full fledged GST from 2010. This point is relevant given the complexity of the taxation of services at state-level as also in view of the difficult-to-tax areas of education and health care to which the state service tax is proposed to be first extended.

To put it differently, the question is whether taxation of services is an appropriate response to the state’s desire for revenue compensation. Perhaps there could be other responses to address this request. It, however, seems that the Empowered Committee has deliberated this point and has come to a determination that the taxation of services by the states is perhaps inevitable.
The above point brings into the connected discussion the manner in which such service taxation by states ought to be introduced. The question, given the seeming inevitability of states being entitled to such revenues, is whether it is appropriate for the Centre to continue to legislate on state service taxes and for the states to limit themselves to collection of such centrally legislated levies or should the states be authorised to both legislate and collect the tax.

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