There may be yet another tweaking in the structure of the goods and services tax that is proposed to be rolled out in little less than six months. The Centre is looking at the option of having dual tax rates on services as well. The rationale is the same as that for levying tax at multiples rates on goods social responsibility. It may not be acceptable for people to pay service tax on essential services like medical auxiliary services at the same rate as that for services provided by say,advertising agencies and beauty parlours, a senior government official said. The move would be significantly different from the current blueprint for GST that envisages multiple tax rates for goods and a single tax rate for services. The idea of a dual service tax rate becoming a reality means a shift from the current indirect tax regime,where services are taxed by the Centre at a single rate of 10 per cent. Interestingly,while the empowered committee of state finance ministers has been vocal about the need for multiple tax rates on goods to ensure equitable taxation,it has been silent on any such plan for the services sector. The empowered committee has so far neither discussed nor advocated dual rates for service tax. But the finance ministry feels that it is its duty to forward the proposal to states which do not have any experience in taxing services. A final decision will,however,rest with the states, the official explained. In fact,after its last meeting on October 8,empowered committee chairman and West Bengal finance minister Asim Dasgupta had indicated that services would be taxed at a single rate. The working group report has been almost accepted but needs some finetuning, Dasgupta had said on the issue. The report had recommended a single tax rate on services. The committee is slated to take up the proposal at its next meeting on October 27,although it will meet finance minister Pranab Mukherjee on Monday as well. But Mondays meeting will focus on the issue of compensation to states for the reduction in the rate of central sales tax. We might give states some initial feelers on dual rates for service tax,but it will mainly be discussed on October 27, the official said. While experts feel having dual rates for service tax would further dilute the structure of GST,it may be the only option given the nature of the Indian polity. Ideally,there should be one tax rate on both goods and services. But given Indias democratic system and economic condition,GST has to have a structure with differentiated treatment for luxuries and necessities, summed up Mahesh Purohit,director,Foundation for Public Economics and Policy Research.
