From 2010 onwards, states will get power to levy and collect the dual goods and service tax (GST) on certain services like amusement parks, private health and education services.
On its part, the Central government will levy and collect GST on all India services like banking, insurance and telecom. In effect, states will collect both central GST and state GST on intra-state services, while the Central government will collect both taxes on all inter-state services.
This has been recommended by the Empowered Committee of State Finance Ministers in the draft GST roadmap, which will be submitted to the Union government for consideration next month.
The states will transfer the centre's share from their collections as per the central GST rate on services. The Centre will do the same while transferring states share in tax on services, but it will be based on destination principle.
In effect, if the service transaction is between parties in two states, the state GST collected by the centre will be transferred to the importing state or consuming state. This is a well-founded principle globally where the dealer could claim input tax credit also if the services are used as an input.
This strategy for services under GST regime is more or less certain and waits for central government's approval. In this context, the Committee has recommended that states be given powers to levy tax on all services.
Currently, only Centre has the power to levy tax on services as per the Finance Act, 1994.
Currently, states receive full collections from 33 services and 30.5 share from the remaining 67
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