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This
has been recommended by the Empowered Committee of State
Finance Ministers in the draft GST roadmap, which will be
submitted to the Union government for consideration next
month.
The
states will transfer the center’s share from their
collections as per the central GST rate on services. The
Centre will do the same while transferring states share in
tax on services, but it will be based on destination
principle.
In
effect, if the service transaction is between parties in
two states, the state GST collected by the centre will be
transferred to the importing state or consuming state.
This is a well-founded principle globally where the dealer
could claim input tax credit also if the services are used
as an input.
This
strategy for services under GST regime is more or less
certain and waits for central government’s approval. In
this context, the Committee has recommended that states be
given powers to levy tax on all services.
Currently,
only Centre has the power to levy tax on services as per
the Finance Act, 1994.
Currently,
states receive full collections from 33 services and 30.5
share from the remaining 67 services taxed by the central
government. This sharing arrangement will continue till
March, 2010. However, the number of services, from which
entire collections go to states, may go up by atleast six
in 2008-09.
From
April 2010, both central and state GST will be applicable
on services comprehensively (compared to 100 services
taxed now) with the exemption of primary education and
primary health services.
Service
tax is going to be a big money-spinner for both the
central and state governments. Service tax collections are
likely to be around Rs 55,000 crore in 2007-08, compared
to the estimate of Rs 50,200 crore. It is expected that
service tax collections are likely to cross Rs 1,00,000
crore by 2010.
Taxation
of services is going to be difficult as both central and
state GST will be applicable on all services. Currently,
only centre levies service tax at one rate of 12 per cent.
Experts
say governments should ensure that the effective tax rate
on services under GST framework, that will see two rates -
central GST and state GST - is such that the economy can
bear.
“The
aggregate incidence of service tax must be moderate under
dual GST. The combined GST rate on services should not be
more than the tax incidence on goods, if not equal,”
said S Madhavan, executive director,
PricewaterhouseCoopers.
It
is expected that the combined GST rate will be around 20
per cent on goods. A combined tax rate of around 20 per
cent on services is even okay as long as end-consumer
bears the tax burden, Madhavan added.
Source
: Business Standard - Mumbai, Maharashtra, India, dated
28/12/2007
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