Private schools and colleges, private health institutions, legal services by notaries and amusement parks may come under the service tax net from the coming year. The move is seen as a precursor to moving towards a comprehensive uniform taxation regime for all goods and services across all states by 2010 under the proposed Goods and Services Tax (GST) regime.
The Empowered Committee of State Finance Ministers, headed by West Bengal Finance Minister Ashim Dasgupta, which is preparing the roadmap, has recommended that states should be given the powers to levy service tax to compensate for the losses of migrating to a GST regime.
The committee is expected to submit the final report this month. Sources, who did not wish to be identified, said that the states could receive the entire tax revenue from these services.
Currently, the central government imposes a tax of 12 per cent on 100 services. Under the existing Centre-states revenue sharing arrangement, states receive 30.5 per cent share from 67 services, while the entire tax revenue of the remaining 33 services would go to states from 2007-08.
This is part of a package to compensate states against revenue losses arising from elimination of central sales tax by 2010.
Tax analysts said that widening the service tax net is a logical first step before rolling out a comprehensive GST. “In the run-up to the GST regime, the government does not have any other option but to expand the service tax net,” said Prateek Jain, director, Indirect Taxes, KPMG.
Service tax, which was first imposed in 1994, has emerged a major source of revenue for the government and is expected to bring in close to Rs 55,000 crore in 2007-08.
The government’s proposal for the GST is in line with the Kelkar Committee’s report to reform the country's tax structure. GST has been flagged off as the next big tax rationalisation measure in indirect tax after the introduction of a country-wide value added taxation (VAT) regime.