State FMs to debate GST on March 3

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.

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 per cent 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.
The tax is levied on 119 services.  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 per cent from 4 per cent for gradual roll out of GST. However, the Centre has refused compensation to the states in the current fiscal.

CST is payable on inter-state sales at 2 per cent. Although CST is levied by the Centre, the revenue goes to the state government. The state from where 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.