Accounting for India's Forest Wealth - Madras School of Economics

commodities, common for all the States, will fall under the general VATrate of 12.5 percent.It was proposed that VAT on AED items relating to sugar, textileand tobacco, because of initial organizational difficulties, will not beimposed for one year after the introduction of VAT and till then theexisting arrangement will continue.Expanding the Tax Base: Service TaxThe service tax was levied for the first time in 1994-95 budget. Sincethen its rate has been progressively increased and the number ofservices under the service tax net has also been increased year after year(Table 1).Table 1: Taxation of ServicesService Tax was introduced from 1st July 1994UnionBudgetNumber ofServicesIntroducedCumulativeNumber ofServicesUnionBudgetNumber ofServicesIntroducedCumulativeNumber ofServices1994-95 3 3 2004-05 7 651996-97 3 6 2005-06 15 801997-98 9 15 2006-07 12 921998-99 11 26 2007-08 6 982001-02 15 41 2008-09 4 1022002-03 10 51 2009-10 4 1062003-04 7 58 2010-11 8 114Source (Basic Data): Union Budgets, various years.Reducing the Tax Rate: Lowering Dependence on Indirect TaxesReducing the tax rates as well as the number of rate categories was akey objective of the reform. In the case of CENVAT, most of the productsused to attract excise duties at the rate of 14 percent until recently. Asper an announcement in December 2008, the core Cenvat rate has beenbrought down to 10 percent. Some products also attract special exciseduty/and an additional duty of excise at the rate of 8 percent above the12