Exemptions only lead to distortions

RUN UP TO THE BUDGET 2004-05/ FICCI

Taxation of services and its integration with taxes on goods is neccessary from the viewpoint of the fair distribution of tax burden among the different sectors, according to the Federation of Indian Chambers of Commerce and industry (Ficci).

With a host of services left out of the tax net, the industry association is of the view that it has brought about distortions in the marketplace, which in turn can lead to an inefficient distribution of resources, including financial capital, among the various sectors of the economy.

In its pre-Budget memorandum to the finance minister, Ficci has suggested that all services should be covered under the service tax and exemptions should be confined only to the public services, essential public utilities and important merit goods. It has asked the government to implement the recommendations of  the M Govinda Rao Committee at the earliest.

"It is necessary to expand the ambit of tax on domestic goods to include the services sector. Time is now ripe to include all services under the tax, except essential public utilities. For the same, the government may come out with a negative list. It is not clear why all the services have not been covered under the tax net," the association said. The rate of service tax should be reduced to 5 per cent and be made VAT-able in all cases, according to Ficci.

Ficci has pointed out that the service tax provision of cargo-handling of export goods are not uniform with respect to the provision of services within and without ports.

These provisions are discriminatory and cause anomalies and distortions in costs of export cargos purely on the premise of where handling operations are carried out.

It has suggested that such cargo-handling and mere transportation of export goods should be excluded from the service tax net, even if provided by the ports.