States to seek powers to levy tax on all services under GST

The entire structure of service taxes is set to undergo a sea-change with the States deciding to seek powers to levy tax on all taxable services along with the Centre under the proposed Goods and Services Tax (GST) to be implemented from April 1, 2010.

According to the Chairman of the Empowered Committee of State Finance Minister on Value Added Tax (VAT) and West Bengal Finance Minister, Asim Dasgupta, who is finalising a report on GST, the States would be levying tax concurrently on all taxable services, along with the Centre.

Earlier, as part of the compensation package to offset the losses on account of the phase-out of the Central Sales Tax (CST) beginning this year, the States were offered powers to levy tax on a total of 44 services. A staggered phase-out of the CST — a levy on inter-state trading of goods — from four to three per cent this fiscal and complete elimination by April 2010 was deemed necessary as it militated against the very objective of imposing VAT and GST for creating an Indian common market across States.

The States, however, felt that the 44 services, mainly local in nature, were too few to make up for the CST losses. “Because States are given a set of paltry items, States did not agree. [Under GST], the States will levy all taxable services, concurrently with the Centre,” Dr. Dasgupta said.

For instance, education was one of the 44 services offered to the States for levying tax, but the States appear to have developed cold feet owing to fear of a public backlash. Dr. Dasgupta pointed out that such a problem would not arise in the case of GST with all the taxable services being taxed concurrently by the Centre and the States.

The sudden change in the States’ stand has surprised tax analysts as the understanding earlier was that the list of taxable services for the Centre and the States would be mutually exclusive. Although the model is yet to be worked out, the Finance Ministry sources made it clear that despite the concurrent levy by the Centre and the States, there would not be an element of double taxation.

Dr. Dasgupta noted said he was hopeful of finalising the GST report by December 20 after the State Finance Ministers forward their views in writing following which, it would be submitted to the Centre. On submission of the report to the Centre, it would then be put on the web for wider comments from the public, including traders.

Source : The Hindu, India, dated 10/12/2007