New Delhi: Government on May 6 introduced in Rajya Sabha a Bill to amend the Constitution to empower states to levy and appropriate tax on services as well, a measure aimed at augmenting their revenues to compensate any loss with the implementation of value added tax (VAT).

The 95th Constitution Amendment Bill introduced by Finance Minister Jaswant Singh said the legislation seeks to allow both the Centre and states to collect and appropriate proceeds of tax on services.

The amendment has been necessitated to bring taxes on services in the seventh schedule of the Constitution. The service sector accounted 48.5 per cent of the country's gross domestic product (GDP) and the sector offered enormous potential for revenue, estimated at Rs 40,000 crore annually.

Singh said the proposed amendment would help in significant augmentation of revenues of the states and pave the way for eventual inclusion of services within the purview of state level VAT.

After the passage of the Bill, a separate Service Tax Bill would have to be enacted by Parliament to operationalise the powers of the Centre to levy appropriate tax on services and states on the remaining services, he said adding the drafting of such a Bill was in progress and states would be consulted before finalising it.

At present, Union government alone is levying and collecting tax on 51 services netting Rs 3,227 crore in 2001-02.

PTI