States seek half of service tax

Final decision on the draft service tax bill after a "consensus".

The first meeting with the states on the proposed draft service tax Bill failed to reach a consensus with most states demanding a 50 per cent share in the proceeds along with the power to levy service tax.

Finance Minister P Chidambaram told newspersons after the meeting that a final decision on the draft service tax Bill would be taken after a "consensus".

"I have no doubt that at the end of it we will reach a consensus.The states shared their views with the central government. I have suggested to all the state governments to carefully consider the views of the other states before formulating their final views on service tax. We will consider all views very carefully and the minutes of today's meeting will be circulated to all the states," Chidambaram said.

The minister said that primarily three issues were discussed "" who would levy the service tax, who would collect the service tax and how would the tax be appropriated.

While no time frame had been fixed for the next meeting, Chidambaram said, "Some very interesting ideas were thrown up and important issues highlighted. It's an encouraging process."

The Union Budget has estimated that Rs 14,150 crore would be collected from service tax in the current financial year. Though a final view on the draft Bill appears unlikely before the next year's Budget, finance ministry officials said this would have no bearing on the implementation of the value-added tax from April 1, 2005.

"Until a final view is taken on service tax, the present devolution formula between the Centre and the states will continue to be implemented. In case the Twelfth Finance Commission suggests a higher devolution to the states, the proceeds from the present 71 services, which are taxed, will be divided accordingly," a senior official said.

At present, 29.5 per cent of the divisible central pool of taxes goes to the states as per the formula determined by the Eleventh Finance Commission.

The Twelfth Finance Commission, headed by C Rangarajan, is finalising its recommendations on the devolution of resources among the states and the Centre for the next five years.

Speaking on behalf of the states, West Bengal Finance Minister Asim Dasgupta said, "All the states have said the Centre should collect service tax but it should be shared on a 50:50 basis."

Also, certain states wanted some of the "major" services for taxation, he said, but added that no conclusion could be reached on this.