The Hindu Business Line : `Synchronise service tax with excise duty structure'

PRESENTING a macro view of the evolving service tax scenario in the country, especially where the Government was now emerging in terms of taxation of services, Dr Parthsarathi Shome, Advisor to the Union Finance Minister, said here on Saturday that States too at some stage have to come into the picture.

It is felt that the dividing line between goods and services will vanish, once it becomes possible to move towards a comprehensive "Goods and Services Tax" (GST).

He also stressed on the need to fully synchronise service tax with the excise duty structure, for greater compliance, considering that both are `creditable against each other'. After introduction in 1994, the Government has been steadily expanding the scope of service tax, which on date covers as many as 80 services.

(The 2003-04 Budget extended service tax to 10 new services taking the total number to 58 and also proposed an increase in rate from 5 per cent to 8 per cent. The 2004-05 Budget extended ST to 13 new areas and raised the rate to 10 per cent.)

Commenting on the forward-looking issues with regard to service tax, at a workshop organised by the Bharat Chamber of Commerce, Dr Shome said though only the Centre can legislate, collect and appropriate service tax, States too may be allowed to collect and appropriate the tax under Parliament's directions.

In 2004, the tax credit system has been integrated between goods and services, and the Constitutional amendment and enabling legislation giving the Union Government the power to levy ST, and which empowers Centre and the States to collect the proceeds has been passed by Parliament.

Among the critical issues highlighted by the economist, said to be the key member of the thinktank coming out with all new taxation proposals such as FBT, are greater coverage of service tax through an expanded base (has a very large base of taxpayers per unit) and further simplification of the tax in keeping with the possibility of a higher turnover threshold. ST target may be exceeded: Mr R. Sekhar, Joint Secretary (Tax Research Unit), Ministry of Finance, told Business Line thatthe target for ST collection during 2005-06 was Rs 17,500 crore, and the figure up to October 2005 was Rs 12,000 crore. He said the collections during 2004-05 Rs 14,196 crore. The Government, according to him, was confident of exceeding the target for the current fiscal.

Responding to pleas by the Chamber for a higher threshold exemption limit (it is now Rs 4 lakh annually), Dr Shome said this may introduce further distortions into the system.