Service tax to net docs, lawyers

New Delhi: Professionals beware! Union Finance Minister P Chidambaram is eyeing your purses.

If the whispers in the North Block are anything to go by, almost all professional services – be it legal, education, health, sports and even film actors – are among the 44 items that are going to come under the service tax. The Finance Minister plans to compensate the states with this money for the phasing out of the Central Sales Tax, which will start from April 2007.

What does it mean to you? Obviously, your family doctor will add a service tax to his bill, raising his fees, and so will the lawyers and Bollywood actors.

According to sources, as many as 44 new services are likely to attract the service tax, and revenue raised from all of these would be transferred to states as per the agreement reached between the Union Finance Ministry and state finance ministers on Wednesday.

The proposal is, however, yet to get the clearance of the Union Cabinet. However, it is very likely to get the Cabinet nod given the fact that in case the tax is not imposed on all the 44 services for some reason, the Centre would be required to compensate the states through budgetary support, something the Union Government can ill-afford, the sources said.

As per the deal, the Centre will be required to give any amount collected from these 44 services to the states. Official sources said that the details regarding these services are yet to be worked out.

As per the package deal, states would also get 100 per cent revenue from the 33 existing services on which the Centre currently levies tax but transfers only 30.5 per cent of the revenue to states. These services include private security, real estate agencies, catering, tour operator, dry cleaning and business auxiliary.

Delhi Finance Minister A K Walia said the Centre has agreed to transfer the entire revenue from 77 services to the states from the next fiscal. Initially, for one year the Centre would collect these taxes and transfer it to the states.

This is part of the compensation package to be given to states for revenue loss due to the proposed cut of CST from four per cent at present to three per cent from April 2007, which works to around Rs 6,250 crore. The entire amount collected from existing 33 services would be transferred to states.

(With agency inputs)