Union Budget 2012: Tax all but 35 services, states ask Centre

States have no objection to the Centre widening its service tax net in the forthcoming Budget, as long as 35 services like ambulance, beauty parlours, marriage halls, interest on bank deposits, leasing of vehicles and machines are kept out of the ambit of the levy.

With a broad consensus emerging between the states and the Centre, Finance Minister Pranab Mukherjee may announce coverage of most of the services used by individuals and business in the Budget 2012-13 to be presented on March 16.

The Centre has proposed introduction of a negative list service tax regime, meaning services out of the list would be taxed.

A unanimous view to this effect emerged in the meeting of the Empowered Committee of State Finance Ministers.

The panel, chaired by Bihar Deputy Chief Minister Sushil Modi, is examining the Centre-state issues on the much-delayed Goods and Services Tax (GST).

"The Empowered Committee is in favour of negative list.

Centre can go ahead of with the negative list. It can be implemented from April 1, 2012, (but) 35 items approved by States (must) be kept in the negative list," Modi told reporters here.

He said the Centre should not impose service tax on the items falling in Schedule VII's List II of the Constitution, on which state impose taxes.

The panel, Modi said, has finalised the list of 35 services which should be included in the negative list.

Earlier, the Centre had released a negative list containing 22 services. At present, the tax at the rate of 10% is levied on 119 services. For the current fiscal, the Centre hopes to mop up Rs 82,000 crore from this levy.

The negative list concept is practiced globally and is proposed to be introduced in India as part of the goods and services tax regime.

Services account for nearly 63% of India's GDP and widening of the net could yield an additional 20% in service tax.

At current prices, the contribution from services during 2010-11 comes at about Rs 50 lakh crore. However, the total collection from service tax during 2010-11 was over Rs 70,000 crore.