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Govt has designs on service tax
January, 31st 2007

If you have an innovative, aesthetic design in mind, the government has a tax for it. The Directorate General of Service Tax has recommended that a range of speciality design services be brought into the tax net, including advertising design, industrial product design and jewellery design.

Industrial product design is expected to rake in the big bucks. The fast growth of media and advertising suggests that advertising design will also be a rich source of revenue for the government. While furniture design has been included in the list , it is unclear how this tax will be collected effectively, as the bulk of this industry is outside the taxation bracket at present.

If youre planning to get some fancy modifications done to your car, be prepared to pay service tax on the design tweaks of your choice. Service tax will be extended to services comprising creating designs and preparing patterns for a variety of products by harmonising aesthetic considerations with technical and other requirements... including customised designs such as cars.

The car modifications business, estimated at around Rs 150 crore right now, has been doubling for the last two years. With the Indian market getting modification-worthy models and the drag and motor sport culture spawning a range of boutique design and tune-up houses, the modification and performance tweak market has been growing at top gear.

Experts say design nips and tucks comprise a lions share of the modifications business, with performance tweaks commanding just Rs 20-25 crore. Worldwide, car modification is a multi-billion-dollar business. In the US, the market is worth $15-20 billion, including motor sport tweaks.

Experts say as the motoring culture catches on and people have more money to spend on their vehicles, the modifications business will take off with non-linear growth in India as well. Body styling and modifications traditionally command the majority of this pie globally.

Speciality design services feature in DGSTs list of 13 new broad services to be brought into the net. This covers furniture designs, aesthetic designs for various consumer products, design services for jewellery, and advertisement design, among others. Fashion design is already in the service tax net and covers conceptualising, outlining, creating designs, preparing patterns for costumes, clothing accessories and jewellery.
In the past, the introduction of new services had led to a lot of controversies due to issues of overlap, particularly on intellectual property services. However, according to Udayan Choksi of Deloitte Haskins & Sells, this may not happen with services such as re-modelling of cars because it is not an intellectual property service.

The rationale being that the intellectual property in this case, the design of the car is yet to be created. Intellectual property services cover temporary transfers or licence to use and an intellectual property right that is already in existence.

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