Service tax on property rental fully justified: Shome

New Delhi, Mar 2 (UNI) Advisor to Finance Minister Dr Parthasarthi Shome has justified imposition of service tax on property rental income, meant for commercial use and maintained that dividend distribution tax (DDT) has been kept at marginal rate of 15 per cent to give leverage for administrative expenses.

''Property rental whether horizontal or vertical were essentially services in nature and therefore has been brought into service tax net,'' he said while addressing an Assocham post-Budget interactive session here.

DDT which has been raised from 12.5 per cent to 15 per cent should not be reviewed in different perspective because of the fact that the average corporate tax for about 30 lakh corporate under various slabs works out to be 17.3 per cent, 17.9 per cent, 18.5 per cent, and 19.1 per cent, Dr Shome noted.

Meanwhile, he said with an element of Frienge Benefit Tax (FBT) and education cess, the effective corporate tax burden on industry works out to be about 21 per cent against claim made by businessmen for 45 per cent.

He added that corporates would have to reflect two per cent and one per cent collection of education cess in their books of accounts under two separate heads which has been introduced in budget proposals for 2007-08.

''While two per cent education cess would be exclusively used for spread of primary education and additional one per cent for secondary and higher education and therefore corporates would be asked to reflect collections of education cess under two separate heads for purpose of clarity.'' The services on works contracts also calls for imposition of service tax and therefore their review is unlikely, further added the Advisor to the Finance Minister.

He clarified that states would also have a contribution to it.

Dr Shome also announced that the focus of the Finance Ministry in future would be to gradually reduce and rationalise customs duties, giving due consideration to needs and requirements of domestic and indigenous industry.

In addition, the government would also rationalise duties particularly customs on capital goods, raw materials and finished products to ensure availability of essential supplies to stabilise the inflationary trends.

The Finance Minister in his budget proposals for 2007-08 has tried to balance the revenue receipts and expenditure part and made huge allocations to social sector like health, education, agriculture and rural economy, he said.

''The thinking behind the proposed move is to bring to the mainstream the neglected and vulnerable lot of society so that their per capita income rises with proportionate production and productivity,'' he said.

Assocham (Taxation Committee) Chairman Nihal Kothari sought review of additional DDT and also urged the government to remove commercial use of properties by way of rental from service tax net, arguing that these would put an additional burden on corporate and shrink their margins.

Eventually, the burden of additional taxation would fall on common man, he added.

Mr J K Mittal, Co-Chairman, Assocham Committee on Indirect Taxes also sought removal of service tax on work contracts, pleading that this will also lead to bureaucracy and calls inconvenience to service tax payer without contributing much to government's kitty.

Among others who participated in the Post Budget Session include Mr Arbind Modi, Joint Secretary (TPL), CBDT, Mr P C Jha, Member, BEC, Mr Rakesh Guatam, Sr V P &Head-SME (North India), HSBC India and Mr Vishal Malhtora, Partner, Ernst&Young.

UNI