The Telegraph
Since 1st March, 1999
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States allowed to levy tax on services

New Delhi, Dec. 18: In its bid to widen the states’ tax base, the Centre has approved a constitutional amendment empowering the states to collect and appropriate taxes levied on services.

Explaining the significance of this, a government spokesman said, “This will augment the states’ financial resources and pave the way for eventual inclusion of services within the purview of state-level value added taxation.” The states have already decided to replace the existing sales tax system with the value added tax system with effect from April 1.

At present, services are taxed at the rate of 5 per cent on gross salary where the revenue generated is collected by the Union government. The service sector contributes around 48.5 per cent of the country’s gross domestic product.

Briefing reporters after the meeting, information and broadcasting minister Sushma Swaraj said: “The proposed legislation on service tax will be done after amending Article 270 of the Constitution...this will provide for levy of tax on services by the Centre and collection and appropriation of the proceeds thereof by the Centre and states in accordance with the principles to be laid down by a new law.”

“This new law will be under the provisions of Article 268(A) that the government will introduce after making an amendment to Article 270 of the Constitution,” Swaraj said, adding the amendment will be introduced in the Budget session of Parliament.

The government is levying and collecting service tax at 5 per cent by virtue of entry 97 of the Union List which gives powers to the Centre to levy and collect any tax not mentioned in either of other two lists, with the approval of Parliament.

States had suggested that they should also be enabled to collect and appropriate tax on some services and had taken a unanimous decision to replace their existing sales tax system with value added tax system from April next year.

In another major decision, the government has sanctioned investments of Rs 8,000 crore to strengthen the rail network connecting the four metro cities—Delhi, Calcutta, Chennai and Mumbai—known as the Golden Quadrilateral.

“To implement this project the Cabinet today approved the formation of a Special Purpose Vehicle fully owned by the railway ministry which will have a paid-up capital of Rs 1,000 crore,” said Swaraj.

In an attempt to trigger a “radio revolution”, the government also decided to allow operation of low frequency FM band radio in education institutions.

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