The Hindu : National : States want 50 per cent share of service tax

Online edition of India's National Newspaper
Wednesday, Dec 01, 2004

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National

States want 50 per cent share of service tax

By Our Special Correspondent

NEW DELHI, NOV. 30. Most of the States have demanded that the Centre share revenue collections through service tax with them on a 50:50 basis, but the Union Finance Minister, P. Chidambaram, said any decision on the issue would be taken by consensus.

After a meeting with State Finance Ministers here today, Mr. Chidambaram said a variety of views were expressed which would be examined carefully. ``I have no doubt, we will reach a consensus,'' he said. ``Some very interesting ideas were thrown up and important issues highlighted. It is an encouraging process,'' he added.

Speaking on behalf of the States, the West Bengal Finance Minister, Asim Dasgupta, said all the States said the Centre should collect service tax but it should be shared on a 50:50 basis. Also, certain States wanted powers to tax some of the major services, but no conclusion could be reached on that.

At present, 29.5 per cent of the divisible central pool of taxes goes to the States as per the Eleventh Finance Commission recommendation. The Twelfth Finance Commission, headed by C. Rangarajan, is in the process of finalising its recommendation on the devolution of resources between the Centre and the States for the next five years and has sought their views. There has been a demand for a higher share of tax revenues to States considering their deteriorating financial health. Service tax and Value-added Tax are seen as two major sources of revenues that can improve the States' finances and reduce deficits.

Both Mr. Chidambaram and Mr. Dasgupta declined to indicate a time frame for arriving at a consensus on service tax. Mr. Chidambaram said today the three main issues were discussed, mainly, who would levy the service tax, who would collect it, and who would appropriate the revenue. The meeting being the first interaction with the States on this issue, he said no decision was expected. ``Each of the States shared their views. I have asked each State to consider the views of other States as well.''

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