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 New indirect tax regime

Revised CBEC draft cuts tax exempted services to 22
November, 19th 2011

The government's indirect taxes body has released a revised concept paper on taxation of services on the basis of a negative list, making some additions and deletion to the first paper put out in August this year. A lesser 22 services will be under the negative list, or exempt from tax, as against 27 proposed in the earlier draft.

The revised concept paper proposes to exempt from tax healthrelated services, those relating to agriculture, horticulture and animal husbandry and passenger travel by non-AC second-class trains, metro and monorails. India currently specifies the services that will be taxed.

The shift to a negative list will mean that all services except those mentioned in the list will be taxed, providing clarity on services that will be taxed and widening the service tax base. The revised concept paper is open for discussion and comments till 15th December 2011, but the government refused to provide a framework for shifting to the new regime.

"The negative list of services should be implemented immediately or we should wait... it is a matter of debate," chairman of the central board of excise and customs ( CBEC) SK Goel said releasing the list. Services are currently taxed at 10% rate. The negative list also includes include services like funeral, burial and mortuary agencies, interest paid on deposits by bank, services provided by independent journalists, dividend on investments, and transport of passenger in public transport.

The major sectors that remain excluded from services tax are financial sector, education, social welfare services, health and certain notified services provided by the government. All stakeholders have by and large supported the negative list concept and believe these developments are in the right direction. "It is good that efforts are being made to move towards a negative list for service tax.

At this rate I believe that the government maybe able to roll it out by the budget", said DK Srivastava, member of the 12th finance commission and director of madras school of economics. The negative list approach will also help widen the tax base for services.

The services sector constitutes more than 50% of GDP but service taxes are only 4-5% of GDP. "This is good step from the fiscal front but bad for the industry. The incidence of indirect taxes is already very high in the country", said Rajiv Kumar, secretary general of the federation of Indian chambers of commerce and industry, an industry lobby.

 
 
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