Date:02/07/2006 URL: http://www.thehindu.com/2006/07/02/stories/2006070203671500.htm

Business

`Service tax, excise need to be harmonised'

Special Correspondent

Goods too heavily taxed, says Shome

CHENNAI: The differential rate of service tax (12 per cent from this year) and excise duty (16 per cent on most goods) is leading to subsidising of value addition, according to Parthasarathi Shome, Adviser to the Union Finance Minister.

This is because of the facility for setting off service tax liability against excise paid on goods purchased (and excise duty liability against service tax paid), he said. This was one of the reasons why a single, synchronised Goods and Services Tax (at the Central level) was desirable, he said.

Addressing a meeting organized by the Federation of Indian Chambers of Commerce and Industry (FICCI), Dr. Shome said taxation on goods, inclusive of excise and State-level value added tax (at 12.5 per cent on a price which included the excise component) ultimately amounted to more than 30 per cent. In addition there was the Central sales tax (on inter-State transactions at a maximum of four per cent). Thus the overall incidence on tax on services was much less than on goods, Dr. Shome said, and added that internationally, the tax on goods and services was more or less equal.

He said that while inverted duty structure on imports eroded the protection meant for domestic industry, inverted structures in excise resulted in piling up of unused duty credit. At the same time, the government had to take into account commitments made under free trade agreements (in respect of import duty).

The problem was compounded by the tendency of less developed countries like African countries to look upon India as a leader, which would protect their interests by giving market access to their goods.

Dr. Shome appealed to trade and industry to respond to the draft proposals on policies and procedures put up on websites of government departments, instead of complaining after these were finalised and given effect to. He urged professionals and consultants to explain to assessee-customers the procedural reforms in central taxes so that officials would not be able to exploit the latter's ignorance of the changes.