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States demand 50 per cent share in service tax kitty

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The Finance Minister, Mr P. Chidambaram, flanked by the Minister of State for Finance, Mr S.S. Palanimanikkam (left), and the Revenue Secretary, Mr K.M. Chandrasekhar, at the Conference of State Finance Ministers on Service Tax in the Capital on Tuesday. — Kamal Narang

New Delhi , Nov. 30

THE State Governments on Tuesday demanded a 50 per cent share in the proceeds from service tax currently being levied and collected by the Centre. As of now, 70 services attract service tax at the rate of 10.2 per cent, with 29.5 per cent of the revenue collections devolving on the States.

"All States are firm in their suggestion that the proceeds of service tax levied now by the Centre being shared on a 50-50 basis between the Centre and the States," said the West Bengal Finance Minister and Chairman of the Empowered Committee of State Finance Ministers on Value Added Tax (VAT), Dr Asim Dasgupta.

He was speaking to newspersons at the end of the first Conference of State Finance Ministers of Service Tax here today. The States have also rejected the proposal made in the draft Service Tax Bill, prepared by the Union Finance Ministry, in which services were sought to be clubbed under four categories for the purpose of taxation.

These were a negative list (services on which no tax can be levied), a Central list (on which only the Centre can levy, collect and appropriate service tax), a State list (on which States have exclusive monopoly) and a shared list (services that both the Centre and States can tax).

The majority of States, however, are now demanding that there be only three lists of services: an exclusive State list, a shared list and a negative list. While the Centre can levy tax on the shared list services, it will have to, however, transfer 50 per cent of the proceeds from these to the States.

The Centre has budgeted service tax collections during the current fiscal at Rs 14,150 crore, of which the main contributors are telephones (Rs 3,518 crore), insurance (Rs 1,278 crore), banking and other financial services (Rs 377 crore), port services (Rs 441 crore) and brokerage (Rs 307 crore). A major complaint voiced by the States is that the Centre is keen on taxing the `cream' among services, while showing readiness to leave the less-remunerative services to the States.

The Union Finance Minister, Mr P. Chidambaram, said that today's conference was only the first meeting on the matter and "we have not come to any decision". The States have expressed a variety of their views on the three main issues of "who will levy the service tax, who will collect the proceeds and how will they be appropriated", he added.

On the issue of VAT, Dr Dasgupta said that all States are now prepared to introduce the new system of taxation to replace the existing sales tax regime from April 1, 2005. These States have either proposed Bills for Presidential assent (after having received the nod of their assemblies) or are going to introduce VAT legislations in their winter session of their assemblies.

Even in respect of Uttar Pradesh, which was seen to be dithering till recently, Dr Dasgupta said that a team of officials from the State Government would be visiting Kolkata on December 4 to sort out issues. This follows a meeting that Mr Chidambaram and Dr Dasgupta had in Lucknow on November 10 with the Uttar Pradesh Chief Minister, Mr Mulayam Singh Yadav.

"The draft for a White Paper on VAT is already ready, which we will place in the domain in the next 15 days. We will also have an advisory group on VAT, drawn from the various apex chambers of commerce and also trade associations like the Confederation of Indian Traders and Bhartiya Udyog Vyapar Mandal," Dr Dasgupta added.

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