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TN Chamber calls for reducing rate of service tax
January, 08th 2007
`No rationale behind continuous expansion of tax base'

The Tamil Nadu Chamber of Commerce and Industry, while reacting to the Union Government's proposal to bring doctors, lawyers and cine actors under the service tax net, has observed that the tax measure, introduced in 1994 with levy on just three services, has become so exhaustive now that it would be better for the Government to announce a negative list instead.

Originally fixed at 5 per cent, the rate of tax has been raised to 12 per cent and, in addition, an education cess of 2 per cent on the tax amount is made payable.

There is no rationale or any perceptible symbiosis between continuous expansion of the schedule of services under the tax net and enhancement of rate of tax.

While widening the tax base, the rate of tax should not be hiked and should be brought down for better compliance to keep the cost of services affordable for the consumers at large. It is necessary that the rate of service tax be immediately reduced at least to 8 per cent, the chamber has pointed out.

Contrary to principle

Referring to yet another anomaly, the chamber said that the levy of service tax on consignors and consignees, who are only service receivers, is contrary to the principle and objective of the levy. To add to the woes of trade and industry, the exemption limit of Rs 4 lakh, available only to lorry transport agencies, is not available to the consignors and consignees and yet, they are liable to pay the tax.

It is also a paradox that the benefit of 75 per cent abatement on gross freight amount is not available to them and for getting it they are required to obtain a declaration from lorry transport agencies in the lorry receipt that the said agencies had not availed themselves of any Cenvat credit. Many agencies do not provide as such or refuse to do so.

The chamber said that while the manufacturers would be able to set off the services tax paid by them towards lorry freight charges from the Central Excise duty payable by them, the traders, on the other hand, are deprived of the benefit as they are not assessees under the Excise net.

It is imperative that the Union Finance Ministry come forward and exempt consignors and consignees from this unjustified levy of service tax on lorry freight charges or at least remove partnership firms from this levy with immediate effect, the chamber said.

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