Govt rejects States' demand for greater service tax share
August, 19th 2006
The Finance Ministry has formally turned down the States' request for 50 per cent devolution of service tax collections as part of the compensation package for proposed Central sales tax (CST) phase-out.
The States currently get 30.5 per cent of all Central tax collections, including service tax.
Sources in the Government said that the suggestions involving additional cash outgo from the Centre had been turned down.
However, the Ministry has in principle agreed to allow the States to collect and retain 100 per cent of collections on 77 services of intra-State nature as part of the package.
It is also understood that States have been asked to consider increasing the VAT rate of four per cent to five per cent and then six per cent over the next two years.
The compensation package for CST phase-out is likely to come up for discussion at the meeting of the Empowered Committee of State Finance Ministers on VAT on August 24 in the Capital.
Higher devolution of service tax collections, powers to levy and collect service tax on about 124 services (intra-State nature), entire proceeds of VAT on imports and powers to levy VAT on three additional excise duty (AED) items formed part of the compensation package that States had sought from the Centre for CST phase-out.
Of the 124 services proposed, the Ministry has approved 68 services.