Dasgupta: Calling the shots

New Delhi, April 14: The list of services to be brought under the tax net of states could get longer from this fiscal. Legal, health and education, besides performances by film artists, are among the 44 services that may have to bear the brunt of the tax axe.

However, the official panel on value-added tax (VAT), which met here today, will take a decision on how many of these services could actually be taxed next month.

“This is part of a compensation package given to states to make up for the revenue loss suffered due to the lowering of central sales tax (CST) to 3 per cent,” said Asim Dasgupta, chairman, empowered committee of state finance ministers on VAT.

On being asked whether the tax on all the 44 services would be imposed this fiscal, Dasgupta replied in the affirmative.

However, the Centre would collect the service tax on behalf of the states in the first year as the latter do not have the administrative machinery to do it on their own.

It was earlier agreed that states would have the power to impose tax on 44 services, including legal, education, health, sports and performances of Bollywood actors.

However, some states are reluctant to impose tax on services such as education, fearing public outcry.

The central sales tax, which is imposed on inter-state sale of goods, was cut from 4 to 3 per cent this fiscal and will eventually be eliminated by 2010-2011. By this time, a common tax on goods and services, called goods and services tax (GST), is slated to take shape.

The VAT panel will also decide on the composition and terms of reference for a working group on GST.

The states’ share in the revenue of the existing 33 services taxed by the Centre has also been increased from 30.5 per cent to 100 per cent and they have been empowered to impose vat on tobacco.

Dasgupta clarified that the 12.5 per cent vat imposed on tobacco would not be levied on beedis and raw tobacco leaves. To give manufacturers time to clear pre-existing stocks, the panel has decided that they can sell these stocks without vat.

Moreover, Rs 2,500 crore has been kept as budgetary support for states to meet their revenue loss.