Indirect Taxes - Indian Budget 2006 – 2007 (150 - 155)

Indirect Taxes

150. The bane of excise and customs tariffs is the plethora of exemptions. On the basis of a comprehensive review, I propose to remove many exemptions that were granted through notifications. Broadly, exemptions that are end-use based or have outlived their utility or need certification or give rise to disputes are being rescinded, with only a few exceptions. The exemption for the SSI sector will, however, remain unchanged.

151. We have also identified some more notifications which need to be removed. However, before taking a final view, I propose to put a list of such notifications on the Ministry’s website and invite comments.

152. This leaves service tax. In 2005-06, the services sector is estimated to contribute 54 per cent of GDP. Naturally, it should also contribute significantly to the exchequer. Continuing in the direction followed in the last few years, I propose to bring more services under the service tax net. The new services to be covered include ATM operations, maintenance and management; registrars, share transfer agents and bankers to an issue; sale of space or time, other than in the print media, for advertisements; sponsorship of events, other than sports events, by companies; international air travel excluding economy class passengers; container services on rail, excluding the railway freight charges; business support services; auctioneering; recovery agents; ship management services; travel on cruise ships; and public relations management services.

153. I also propose to expand the coverage of certain services now subject to service tax. I do not wish to burden the House with the details which are available in the Budget papers.

154. The leasing and hire purchase industry has faced some difficulty owing to the levy of service tax on all components of payments, including interest. I propose to rectify the anomaly. Accordingly, interest and instalments of the principal amount will be abated in calculating the value of the service.

155. It is my sense that there is a large consensus that the country should move towards a national level Goods and Services Tax (GST) that should be shared between the Centre and the States. I propose that we set April 1, 2010 as the date for introducing GST. World over, goods and services attract the same rate of tax. That is the foundation of a GST. People must get used to the idea of a GST. Hence, we must progressively converge the service tax rate and the CENVAT rate. I propose to take one step this year and increase the service tax rate from 10 per cent to 12 per cent. Let me hasten to add that since service tax paid can be credited against service tax payable or excise duty payable, the net impact will be very small.