New Delhi: It was but a matter of time before service tax became a matter of conflict between state and central governments. States are now demanding an equal share in the proceeds from service tax currently being levied and collected by the centre.

From the budget of 2004 service tax is being levied on 70 different services at the rate of 10.2 per cent and 29.5 per cent of the revenue collections pass to the States.

Asim Dasgupta the West Bengal finance minister and chairman of the ''empowered committee of state finance ministers on value added tax'' told newspersons at the end of the first conference of state finance ministers, "All States are firm in their suggestion that the proceeds of service tax levied now by the centre should be shared on a 50-50 basis between the centre and the states," he said.

The finance ministry had prepared a proposal in the draft Service Tax Bill in which services were clubbed under four categories for the purpose of taxation. The states rejected the proposal.

The proposal contained a negative list (services on which no tax can be levied), a central list (on which only the centre can levy, collect and appropriate service tax), a state list (on which states have exclusive monopoly) and a shared list (services that both the centre and states can tax).

The states are demanding that there should be three lists of services: an exclusive state list, a shared list and a negative list. They say that while the centre can levy tax on the shared list services, however, it will have to transfer 50 per cent of the proceeds from these to the states.

The centre has budgeted service tax collections during the current fiscal at Rs 14,150 crore, of which the main contributors are telephones (Rs 3,518 crore), insurance (Rs 1,278 crore), banking and other financial services (Rs 377 crore), port services (Rs 441 crore) and brokerage (Rs 307 crore). The states are also complaining that the centre is keen on taxing the `cream'' among services, while leaving the less-remunerative services to the states.