State FMs to meet on March 3 over expansion of service tax net

Ahead of the Union Budget, the state Finance Ministers will meet here on March 3 and suggest steps for increasing the ambit of the service tax net with a view to garnering more resources.

The state Finance Ministers have decided on the negative list and are expected to sort out issues concerning definition of services so that more economic activities could be brought under the tax net.

"We will meet on March 3. There was differences of opinion on definition of services. This time we will take a final view. Last time we achieved consensus on the negative list," Chairman of the Empowered Committee of State Finance Ministers on GST Sushil Modi said.

It is widely expected that in the Union Budget on March 16, the government is expected keep 22 services in the negative list and impose 10% tax on all other services.

A proper definition of service will help the government in imposing levy on more economic activities and also prevent tax-related disputes.

Last month, the Empowered Committee of State Finance Ministers on Goods and Services Tax (GST) had approved imposition of service tax based on a negative list of services.

At present, the tax is levied on 119 services. For the current fiscal, the Centre hopes to mop up Rs 82,000 crore from this levy.

Modi said that during the next meeting the ministers would also deliberate on development of Information Technology network for GST, headed by Nandan Nilekani.

On compensation for phasing out of Central Sales Tax (CST), Modi said, "The Centre is refusing to give CST compensation for 2011-12. This issue will also be discussed and we will try to reach an amicable solution."

The Centre has agreed to release around Rs 6,394 crore for 2010-11 as compensation to states for the gradual lowering of CST to 2% from 4% for gradual roll out of GST. However, the Centre has refused compensation to the states in the current fiscal.

At present, CST is payable on inter-state sales at 2%. Although CST is levied by the Centre, the revenue goes to the state government. State from which movement of goods commences gets revenue.

The government is trying to introduce the new GST regime, which will subsume various levies like excise, service tax and states tax, like value-added tax, entry tax and purchase tax.

In their pre-Budget consultative meeting with the Finance Minister, industry too demanded that government should come out with negative list, while expanding the service tax base.