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The
finance minister observed " A quarter of my GDP is agriculture. It is out
of the tax net. One half of my GDP is services. I cannot depend for taxes only
on manufacturing. Therefore, service tax has to come in. "
On
levy of service tax by the States, the finance minister said, "Service Tax
issues I did discuss with the finance ministers of the States. We are moving in
that direction. They have some problem. They have some worries. I have already
moved amendment to article 269 for the forthcoming session of Parliament, to
enable the States to directly tax services."
Jaswant
Singh's statement that amendment to Article 269 has been moved means that the
central government will levy the tax on services and the States will be allowed
to collect and appropriate the tax on the services demarcated for them.
Currently,
tax on services is not mentioned in either the Union List or the State List in
the Seventh Schedule of the Constitution.
The
Constitution has however given the Centre the power to levy and collect any tax
not mentioned in either the Union or the State List (List II and List III), with
Parliament’s approval. It is by virtue of this residuary power conferred under
Entry 97 of the Union List that the Centre has since 1994 being levying and
collecting a 5 per cent tax on select services.
The
proposed amendment seeks to place services tax formally under the Union list.
This will pave the way for the Centre to levy, collect and appropriate the tax.
The States will also be conferred of collection and appropriation of the
proceeds on tax on services.
Three
lists would be drawn up – one where the Centre would collect service tax,
second where States would appropriate the tax and third negative list to ensure
that the Government and social services are not subject to service tax.
There
are likely to be two administrative authorities for Service Tax, the Central
Authority and the State Authority. Is this the rationalisation and
simplification that the Finance Minister promised?
With
both the State Governments and the Central Governments looking to the service
sector for revenue growth, the lack of clarity on the shape of the Service Tax
Act and the modalities of collection of tax by the States and the Centre is
worrisome.
Considering
that Service Tax will be a major source of revenue in the future, the levy
should not be broad based without a comprehensive legislation setting out the
basic threshold limit, integration with CENVAT and/or State VAT and other
issues. Though States are likely to be given power to collect taxes, the powers
should be restricted to notifying the services subject to tax. A new central
authority should ideally administer the levy with a wing functioning under the
State Government to oversee the collection of the levy by the States. The
administration should be dissociated from the jurisdiction of Central Excise for
the general perception is that Central Excise department is not taxpayer
friendly.
To
inspire confidence in the new set of service tax payers who have had no occasion
till now to interact with either central excise or sales tax authorities, the
system should be impersonal with very little personal interface between the tax
administrator and the tax payer. The taxpayer and the tax administrator should
be faceless. The best way to achieve this is to accept the recommendation of
kelkar to have service tax as the first model E tax.
The
Finance Minister can take a leaf from the reforms in Stock Markets. The National
Stock Exchange has successfully demonstrated what modern technology can do to
infuse transparency and lower transaction cost. Trading in shares is now
paperless with dematerialisation of shares.
The
main thrust in Jaswant Singh's budget may not be GDP growth but GNC growth.
Wonder what GNC is ? GNC is the short form of "Gross National
Contentment" , a term coined by Mr.Jaswant Singh. To a query on what is the
key difference he would like to make in the next two budgets that this
Government is likely to present, the Finance Minister has said that he would
like to contribute to the Gross National Contentment and that the citizen must
feel good.
Let us hope that on February 28,2003, our
GNC and the Stock Markets soar.
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