Kerala has opposed the move to expand the service tax regime to cover more sectors, since it will lead to double taxation. The State has demanded service tax exemption for the tourism sector, which is finding it difficult to compete with Sri Lanka and other South East Asian destinations owing to the burden of luxury and service taxes that come to 25 per cent.

Strongly pitching the State’s views against expanding the service tax regime at a pre-budget conference convened by Union Finance Minister P. Chidambaram in New Delhi on Wednesday, Finance Minister K.M. Mani pointed out that the expansion of the service tax base had adversely made inroads into the State list of the 7 schedule of the Constitution. The tax is at present levied by virtue of the residuary powers in the Union list, where sales tax, luxury tax, and entertainment tax are based on specific entries on the State list. These items have become taxable under the Union list, which could lead to double taxation, he said.

Mr. Mani emphasised the need for a rationalised tax structure in the case of vehicles registered in one State and entering another. The rate of tax levied by some States is much higher in comparison to others. He wanted the Centre to come up with a standard structure for taxation in consultation with the States, affording enough flexibility, including categorisation of vehicles across the country.

He wanted the Centre to expedite the introduction of Goods and Services Tax in order to tide over the ill effects of the slow down of the economy.

Another major demand that the State put forward related to subsidy for supply of coconut oil through the public distribution system (PDS). Mr. Mani said that subsidised distribution of duty-free palm oil had severely affected Kerala’s coconut farmers. He wanted a higher import duty to be levied on palm oil. Mr. Mani also made a fervent plea for a special fund to support State governments to combat the ill effects of global economic slowdown.

He said that the government’s efforts to adhere to fiscal consolidation had yielded positive results through achievement of fiscal deficit targets and higher revenue mobilisation without curtailing development spending. However, the State government required more Central assistance to tide over the fiscal imbalances that might come up due to increase in committed expenditure and also its determination to augment capital investment, he said.