The government is likely to announce preliminary steps towards setting up a nodal agency to deal with service tax related matters in the coming budget. In the process, a complete overhaul of the Central Board of Excise and Customs (CBEC) is also on the cards.
At present, tax is levied on a diverse range of 99 services including telecommunication services, cable television and so forth. The actual collection in 2006-07 is likely to exceed the budget estimate of Rs 34,500 crore.
The need to set up a nodal agency was felt as the road map for a shift towards goods and services tax (GST) regime is being worked out. The government plans to introduce GST by 2010, though exporters feel it should be even earlier.
"A nodal agency to deal with all service related matters is extremely important. There are special issues which need to be addressed on both taxation of services and trade-in-services, particularly cross border services,” finance ministry officials privy to policy making told the Hindustan Times.
The question of jurisdiction has also to be addressed. Who will collect the GST, the states or the centre? "The matter needs to be looked at holistically," sources close to the budget making exercise said.
Indications are that Budget 2007-08 might announce a 1 per cent cut in the Central Sales Tax (CST) rate from April 1 this year and lay out a roadmap for further reductions so as to completely abolish the tax by 2010. The CST phase out may be linked to providing alternative avenues to the states for revenue generation.
Officials said a consensus was emerging to allow states to tax a defined set of services and also allow them impose a state VAT on imports, in addition to the present VAT on indigenous sales and purchases. The government’s proposal for the GST is in line with the Kelkar Committee’s report to reform the tax structure in the country.
GST has been flagged off in Budget 06-07 as the next big tax rationalisation measure in indirect tax after the introduction of state-wide VAT. GST will mean that all states and the Centre will have a uniform rate of goods tax and a similar rate for service tax.