States may seek more services in tax ambit

Written by Surabhi Rastogi | Surabhi | New Delhi, Jul 30 | Updated: Jul 31 2007, 04:31am hrs
Not satisfied with the 77 services transferred to them as compensation for phasing out central sales tax (CST), states may ask the Centre to transfer more services to them.

State governments may now seek transfer of more services like works contract to its jurisdiction.

The issue was raised by certain states at a meeting of the empowered committee of state finance ministers earlier this month. As part of the compensation package for the phase out of CST, the Centre had transferred to the states 33 services on which it levies tax.

Worried over possible revenue loss, states are now eyeing some more services taxed by the Centre. The states had been allowed to levy taxes on 44 new services like dental care, veterinary services, performing artistes, transport, legal services, education, electricity distribution, as well as hospitality.

However, the empowered committee, in its last meeting, decided to tax only four servicesprivate education, health, amusement parks and legal notaries. The rest, they are of the view, are untaxable in nature as it would be difficult to keep track of some, while others are too insignificant in nature.

A final decision on the issue will, however, be taken after further discussions by the empowered committee. If agreed upon, a list of services would be prepared and submitted to the finance ministry.

CST, levied at 4% on inter-state sale of goods, is projected to fetch Rs 25,000 crore to states from 2007-08. States are expected to lose about Rs 6,250 crore to the 1% cut in CST in the next fiscal. The Centre, however, has promised states Rs 2,500 crore as grant-in-aid in the coming fiscal for meeting any revenue shortfall on account of the reduction.