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Govt may bring all services under tax net
November, 29th 2006

Barring a few essential and basic services such as water and power supply as well as medical facilities, the government may have to look at bringing all others under the tax net.

Pointing at the meagre contribution of service tax to the tax kitty, the Parliamentary Standing Committee on Finance has asked the government to expand the service tax base.

The committee asked the government to prepare and pursue a roadmap for transiting to a comprehensive coverage of all services in the tax net by specifically exempting basic or essential ones.

At present, the service tax rate is 12.24%. While the service sector contributed to more than 50% of the GDP, tax revenue generated from the sector had ranged between 3.1% and 4.6% of the gross tax revenues from 2003-04, it said. Though the service sector had to be encouraged for its contribution to the economy as well as the society at large, the other sectors of the economy too needed to be given an equal amount of encouragement, the committee said in its report tabled in Lok Sabha on Tuesday.

The committee, taking a dig at the governments action-taken reply, said that instead of viewing the thrust of its recommendation in the right perspective, the government had mainly recounted the fact that additional services had been included in the list of taxable services in Budget 2006.

It was only after being convinced of the need and desirability of transiting from selective taxation of services to general taxation of all services, barring the essential ones, that the committee had recommended for the same, the report said.

With the facility of Cenvat credit on the manufactured input utilised in a service and vice-versa, the committee felt that the comprehensive extension of tax on all services, though might be difficult, may not be an impossible task to achieve.

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