Finance Ministry will soon come out with a discussion paper on service tax to increase its contribution to the overall tax kitty and align it with the proposed Goods and Services Tax (GST).
"The Finance Ministry is working on a discussion paper on taxation of services to get opinion and feedback before moving to GST," a source told PTI.
The source further said, based on the feedback, the ministry would decide on the need to prepare negative list of services, adding, "The services sector contribute more than 50 per cent of the GDP but its representation in revenue is relatively low."
Finance Minister Pranab Mukherjee in his Budget 2011-12 speech had said that many experts have argued that it will be desirable to tax services based on a small negative list, so that many untapped sectors are brought into the tax net.
"Such an approach will be very conducive for a nationwide GST. I propose to initiate an informed public debate on the subject to help us finalise the approach to GST," Mukherjee had said.
Currently, few services come under the tax net. But after GST is implemented, taxes would be levied on most of the services.
In the Budget Session, the Government had introduced the Constitution Amendment Bill in the Lok Sabha which seeks to pave the way for the Goods and Services Tax.
The new GST regime would subsume most of the indirect taxes like excise duty and service tax at the central level and VAT on the state front, besides local levies.
GST, which is considered to be a major tax reform, has been pending for the past few years due to differences between the Centre and some states over the new structure.
The Bill was the fourth draft prepared by the Centre after the first three drafts were rejected by the states, citing autonomy issues.
However, a few states, mainly those ruled by the BJP , continue to oppose the existing GST structure.
After missing the original April, 2010, deadline for GST rollout, the government had proposed to introduce it in April, 2011.