The Telegraph
Since 1st March, 1999
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Asim seeks right to tax boom sectors

New Delhi, Oct. 18: Bengal today deftly played out a demand for powers to tax the insurance, banking and telecom sectors through new service levies sanctioned at a meeting between chief ministers and Prime Minister Atal Bihari Vajpayee.

The state, which has one of the highest savings rates in the country, could reap a rich bonanza, if the Centre agrees to its demands. Banking and insurance account for nearly 7 per cent of the country’s gross domestic product and the contribution of this sector to the GDP is valued at around Rs 1,00,000 crore every year. Bengal alone accounts for about 12 per cent of this.

The telecom industry generates revenue in excess of Rs 30,000 crore. The insurance industry and telecom companies now collect a 5 per cent service tax from customers, which is paid out to the Centre. The total earnings of the Central government from service taxes is estimated at around Rs 6,000 crore. The states could earn up to Rs 3,000-5,000 crore if they are given powers to tax these burgeoning sectors.

Bengal alone could earn about 8 per cent of this.

The chief ministers’ meet today endorsed an earlier decision at the level of finance ministers that the states will be given additional powers to tax services through an amendment of Article 269 of the Constitution.

Finance minister Asim Dasgupta linked the clearance of the services that the states would be allowed to tax to the nationwide Value Added Taxation system — something that the chief ministers have already agreed to.

Dasgupta today acted in concert with several other state governments to get the Centre to agree to a list that favoured the states in order to make them fall in line with the deadline of April, 2003, for the implementation of the VAT regime.

This had proved elusive because of bickerings among the states that have been saying the nationwide Value Added Taxation would mean lower revenues for most of them in the medium term.

The system is seen by the Centre as an ideal way of enlarging the tax base and by business, as a way of avoiding multiple taxes at the Centre and the state. However, it is to be seen whether the Centre agrees to today’s demand to give the states right to tax three potentially lucrative sectors.

Top finance ministry officials, however, said they did not see such concessions coming easily.

Today’s meeting also endorsed an earlier decision to transfer funds under Centrally-supported schemes to the panchayats and non-profit bodies that implemented them through the state governments only.

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