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Govt to reintroduce sector-specific tax filing codes from December
November, 28th 2012

The government will reintroduce sector-specific tax filing codes from December, reversing the single-code system it launched five months ago.

To make tax filing easy under a new service-tax regime that covered more sectors than before, the central board of excise and customs devised one common code for filing service tax.

As a result, while the government earned more revenue, it has no data on sector-specific contributions to service tax from the time a so-called negative list of services was introduced in July.

The idea of taxing services based on a negative listall services not mentioned in it have to pay taxeswas floated in last years budget with the aim of bringing untapped sectors into the service-tax net.

As part of simplifying the process for service-tax filing post introduction of negative list, business entities were required to pay the tax under one common code, said a finance ministry official, who did not want to be identified.
But because of this, we do not have data on what is the increase in service tax collections due to the negative list.
Before the negative list-based approach, services were taxed based on a positive list, in which a description for each taxable service was specified.

From December, we will go back to filing returns under 119 codes for various sectors like construction. In addition, there will be one extra code called residual services, which will capture services made taxable due to the introduction of a negative list, said another official.

Though the government can analyse the tax returns filed by companies to assess the sector-specific contribution, its a tedious task.

Also, the data will be available only after a long lag as returns are filed quarterly or half yearly.
Service tax collections were at around Rs.70,000 crore in April-October, around 30% of the total indirect tax collections.

The negative list has in a sense served its purpose, as it has brought under the taxable ambit a wide variety of services including air conditioned rail passenger travel, freight movement and construction services.
While all other services came under the net in July, rail passenger and freight came under the net in October. Bringing rail freight under the service-tax net is expected to check huge tax evasion as the railways will have to maintain proper records of the goods transported.

The decision to go back to filing tax under various codes will complicate the procedure for tax payers, said Bipin Sapra, tax partner at consulting firm Ernst and Young.

More than 90% of the taxpayers provide more than one service. At present, they pay one consolidated amount as service tax for the different service provided, he said. They will have to again change their IT systems to ensure that tax for different services is paid under different codes.

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