States are unlikely to get the power for collecting tax on services along with introduction of VAT regime on April 1, 2003.According to finance ministry officials, the legislative framework for allowing the states to collect tax on specified services will take at least a year to assume a final shape. They, however, added this will not create any problem in imposition of VAT from the proposed date as the states have decided not to link the issue of service tax collection with VAT. At present, the finance ministry is in the process of concretising the draft proposal for amending the Constitution to empower states to realise tax on services. Once law ministry vets the proposal, it will be sent to the cabinet for approval. Officials said that after Parliament clears the amendment, the ministry will send a Service Tax Bill to the cabinet aimed at putting in place a comprehensive service tax structure in the country. The Bill will outline the ambit of both states and the Centre with regard to taxation of services. The legislation after seeking Parliament nod will have to be ratified by half the state legislatures, said officials.They added that the whole process is time-consuming and cumbersome and the central government will move cautiously in this regard. Experts, too, are not in favour of a hurried approach on this issue. Pawan Aggarwal of NIPFP, a special invitee to the working group looking into the matter, said that the entire structure should be formulated carefully. “I won’t mind any delay,” added Dr Aggarwal. He stressed that unless the states develop capabilities to integrate services with VAT, they should not be allowed to collect tax on them.Finance ministry is to take a final decision on the formula for compensating revenue losses in the initial years of VAT.
