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Service tax net to cover lawyers, nursing homes
February, 26th 2007

The finance ministry is likely to cast the service tax net wider to capture lawyers, nursing homes and amusement parks when he presents the budget on February 28.

FM P Chidambaram is also likely to redefine certain services to plug loopholes through which some service providers such as bus fleet owners were escaping without paying tax, sources said.

They said the minister is likely to add more number of services to the list of taxable ones than he did last year. In his previous budget, Chidambaram had added 15 new services and also withdrawn exemption to six more. Now altogether 98 services are taxed at the rate of 12.2%.

The Finance Bill is likely to propose amendments to expand the scope of some services such as tour operators, minor port services and certain banking and financial services.

Currently, for example, the definition of a tour operator service is borrowed from that of a tourist vehicle under the Motor Vehicles Act, 1888, which calls a tourist vehicle a 'contract carriage'.

That has brought most tour operators under the tax net, but allowed bus owners who run only their fleet of vehicles for touring to avoid paying it.

The service tax department wants this loophole to be plugged by inserting an explanation to include all 'contract carriage' permit holders under the tour operator definition in the Finance Act.

However, such a change could also compel state-owned transport corporations to pay the tax. State transport corporations may then be forced to take the unpopular decision of raising fares.

At minor ports where ships cannot dock, cargo is unloaded to barges to transfer them to the terminal. The barge operators do not pay tax on the revenue from transporting goods from ships to the terminal arguing that it is movement by sea and should be considered freight.

"As water transportation is not covered under service tax, this leg of service automatically is taken out of the ambit," said Vikram Nankani, partner with Mumbai-based Economic Laws Practice.

The tax department now wants the government to include all minor port services to be taxed.

The scope of services that are called "transfer of information and data processing" may also be widened.

This is in addition to some amendments to be made on service tax on depository participants, consideration earned by the contractors appointed for toll collection, liability of money changers and underwriting services.

Service tax has become one of the major money spinners for the government. In 2006-07, service tax collections are expected to touch Rs 40,000 crore against the targeted Rs 34,500 crore.

In 2005-06, the centre had collected over Rs 21,000 crore against its target of Rs 17,500 crore.

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