States against taxing sensitive services
Sources say 44 new services like legal, education and sports would be given to states for the purpose of tax.
By PTI |
NEW DELHI: Some states on Tuesday expressed reservations to taxing certain services for the fear of public backlash, even as an official committee on VAT claimed that it has reached an agreement with the Centre on bringing services under the state tax net.
Empowering states to tax some services is part of a compensation package to pave the way for phasing out Central Sales Tax (CST) from April one, 2007. CST being the tax on inter-state sale of goods works against the purpose of VAT.
Coming out of the VAT committee meeting here, its chairman Asim Dasgupta told reporters that an agreement has been reached with the Finance Ministry on a compensation package, which includes both budgetary support and power to states to tax some services.
Though he refused to give details on the pretext that the package would form part of the Budget, sources have said that 44 new services like legal, education, health, sports and performances of bollywood actors would be given to states for the purpose of tax.
Thirty-three existing services would also be allowed to be taxed by states, the sources said.
Because of states' insistence, for the first year the Centre would collect tax on these items and give it to states.
However, some state representatives today expressed reluctance to tax all the 44 new services since some sensitive items like education would evoke public protest.
A few days ahead of the Budget, the Empowered Group of state Finance Ministers on VAT would meet again to thrash out the issue completely.
If tax on sensitive services like education is imposed, the people would consider us as a tax collecting machinery, some state representatives at the VAT committee meeting told reporters.
Dasgupta said he met Union Finance Minister in the morning on the issue of empowering states to collect tax on some services. Later, the panel discussed the issue. "We have reached the agreement," he said.
Empowering states to tax some services is part of a compensation package to pave the way for phasing out Central Sales Tax (CST) from April one, 2007. CST being the tax on inter-state sale of goods works against the purpose of VAT.
Coming out of the VAT committee meeting here, its chairman Asim Dasgupta told reporters that an agreement has been reached with the Finance Ministry on a compensation package, which includes both budgetary support and power to states to tax some services.
Though he refused to give details on the pretext that the package would form part of the Budget, sources have said that 44 new services like legal, education, health, sports and performances of bollywood actors would be given to states for the purpose of tax.
Thirty-three existing services would also be allowed to be taxed by states, the sources said.
Because of states' insistence, for the first year the Centre would collect tax on these items and give it to states.
However, some state representatives today expressed reluctance to tax all the 44 new services since some sensitive items like education would evoke public protest.
A few days ahead of the Budget, the Empowered Group of state Finance Ministers on VAT would meet again to thrash out the issue completely.
If tax on sensitive services like education is imposed, the people would consider us as a tax collecting machinery, some state representatives at the VAT committee meeting told reporters.
Dasgupta said he met Union Finance Minister in the morning on the issue of empowering states to collect tax on some services. Later, the panel discussed the issue. "We have reached the agreement," he said.
Sources in the Union Finance Ministry said the entire collections from 33 existing services, where states currently get 30.5 per cent of the kitty, would be transferred to states from the next year.
If tax on 44 services are imposed, collection from it would also be given to states, they said. If for any reason, tax on these services are not imposed, states would be compensated through budgetary support, they added. As such, states are not going to lose anything.
CST fetches about Rs 25,000 crore to states and one per cent reduction of CST from four to three per cent causes Rs 6,250 crore.
CST was originally scheduled to be cut to two per cent this fiscal and eliminated by next fiscal. However, differences between the Union Finance Ministry and states over a compensation package led to its postponement. Finally, CST is planned to be phased out from the next fiscal, but the cut is diluted to one per cent.
Download
The Economic Times Business News App for the Latest News in Business, Sensex, Stock Market Updates & More.
The Economic Times Business News App for the Latest News in Business, Sensex, Stock Market Updates & More.
Download
The Economic Times News App for Quarterly Results, Latest News in ITR, Business, Share Market, Live Sensex News & More.
The Economic Times News App for Quarterly Results, Latest News in ITR, Business, Share Market, Live Sensex News & More.
ADVERTISEMENT
