State FMs agree in principle to non-taxable 'negative list'

The Empowered Committee of State's Finance Ministers on GST on Monday agreed in principle to the concept of services tax based on the 'negative list' and suggested that the Centre could prepare such a list which would help widen the tax base.

The committee headed by Deputy Chief Minister of Bihar Sushi Kumar Modi met to deliberate on the concept paper of taxation of services based on the negative list.

"The panel has agreed in principle to the concept of negative list and the Union Government should prepare it and can also implement it from April 1, 2012 after resolving the state's concerns in this regard," Modi told reporters on the first day of the two-day long meeting.

The committee suggested that all those items mentioned in the Constitution's schedule II should be included in the negative list so that Centre cannot impose tax on them.

The committee also deliberated on defining 'services' and felt that all kinds of economic activities barring goods, money and immovable property should be considered as part of the services, he said.

The negative list will include services like funeral, burial and mortuary agencies, interest paid on deposits by bank, dividend on investments, passenger travel in public transport among others. The significance of the negative list is that all those services not included in the negative list would be liable to be taxed by the states.

Modi said that at present service tax is imposed on 120 services and hoped that after the implementation of negative list, many more services would be brought under the purview of tax regime and will help in further widening the tax base.

Referring to the implementation of the proposed Goods and Services Tax (GST) regime, he said that the matter is pending with the Standing Committee of the Finance Ministry and states like Uttar Pradesh, Tamil Nadu, Madhya Pradesh and Gujarat among others have major objections to its introduction.

He said states have estimated a loss of Rs 19,000 crore in revenues after the Central Sales Tax was reduced (as part of the move towards GST regime). But so far the Centre has released only Rs 6,393 crore to 13 states by way of compensation.

Modi informed that the Union Finance Minister Pranab Mukherjee has called a pre-Nudget meeting of the State's Finance Ministers on January 18, during which they will raise all these issues.

The finance ministers of all states except the five poll-bound states attended today's meeting, he said, adding finance ministry officials of the poll-bound states were present at the meeting.