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The
Empowered Committee of State Finance Ministers, headed by
West Bengal Finance Minister Ashim Dasgupta, which is
preparing the roadmap, has recommended that states should
be given the powers to levy service tax to compensate for
the losses of migrating to a GST regime.
The
committee is expected to submit the final report this
month. Sources, who did not wish to be identified, said
that the states could receive the entire tax revenue from
these services.
Currently,
the central government imposes a tax of 12 per cent on 100
services. Under the existing Centre-states revenue sharing
arrangement, states receive 30.5 per cent share from 67
services, while the entire tax revenue of the remaining 33
services would go to states from 2007-08.
This
is part of a package to compensate states against revenue
losses arising from elimination of central sales tax by
2010.
Tax
analysts said that widening the service tax net is a
logical first step before rolling out a comprehensive GST.
“In the run-up to the GST regime, the government does
not have any other option but to expand the service tax
net,” said Prateek Jain, director, Indirect Taxes, KPMG.
Service
tax, which was first imposed in 1994, has emerged a major
source of revenue for the government and is expected to
bring in close to Rs 55,000 crore in 2007-08.
The
government’s proposal for the GST is in line with the
Kelkar Committee’s report to reform the country's tax
structure. GST has been flagged off as the next big tax
rationalisation measure in indirect tax after the
introduction of a country-wide value added taxation (VAT)
regime.
Source
: Hindustan Times - India,
dated 01/02/2008
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