Indian Professionals Likely To Face Service Tax

by Mary Swire, Tax-News.com, Hong Kong

31 October 2001

In conjunction with the new VAT system which forms part of the economic reform package being implemented by the Indian federal government, state authorities are calling for a service tax to be levied on all of the country's professional workers.

At present, state governments are permitted to levy tax on electricity, entertainment, luxury services, and passengers and goods transported by motor vehicles. However, in an attempt to recoup some of the VAT shortfall likely to result, some Indian states are asking to be allowed to charge an all sector service tax.

According to reports following the submission of the proposal for government consideration, the federal authorities have so far resisted making such a move, but states are asserting that the government's own arguments for the introduction of VAT, namely that it is compatible with international practice, and prevents multiple taxation of the same commodity, can be employed in favour of an across-the-board service tax.

Although the full detail of the proposal is not yet clear, Indian officials have reportedly hinted that professionals who earn under an average wage could be exempted from paying the service tax. However, there is, as yet, no consensus on what constitutes an 'average wage', which has problematized the process somewhat.

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