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Positive list of services in GST
April, 12th 2010

Media reports give some indications of the shape of the various aspects of the GST after the Discussion Paper which has outlined the overall limit of its scope. There is still a lot of scope for variation of doing things in different ways. The Finance Commission Report on GST also has given some variations. Many seminars and other experts have also added to the subject various suggestions for the last few months after the Discussion Paper was floated.

Apart from the media reports, those who have knowledge about the developments in this matter have also added confirmation to the uncertainty that the Central Board of Excise and Customs which is dealing with the excise and the service tax at the Central Government level still thinking that in the ensuing GST the service tax will continue to have a positive list of services.

This means that this will continue to have all the 115 services that are now taxable with their definitions and exemptions and even clarifications. It is not definite that this is actually the shape of things to come but considering the comments given by some experts on this issue which have been reported in the media there is every likelihood that the positive list is actually still in the reckoning.

I am writing this treatise to say that such a move of having a GST imbibing comprehensive goods tax with a selective service tax will be a disastrous combination. A GST can only be a combination of comprehensive goods tax and a comprehensive service tax with negative list for both. If we have a comprehensive goods tax with a negative list and a selective service tax with a positive list it will be a half way house and no better than the present system.

All over the world and in Canada and New Zealand too (these being the best examples), there is only negative list for goods and services. The Finance Commission recommendation on GST has also given a combined goods and service tax with a negative list for both goods and services.

The reason why GST is a highly improved system of indirect taxation on consumption is that it is simple. There is no need to define either the goods or the services either by artificial definition or by scientific definition or by market definition or in any other way. If we go to buy a camera the invoice will write camera and if the value is 100, the invoice will add 7% if that is the rate of GST. If you go to repair a camera, the invoice will write repair of camera and if the repair cost is 14 then the GST will be again 7 per cent, that is 2. It is as simple as that. There is no need of writing the CCCN classification no need to write fourteen digit CCCN classification number like 2825 90 20, etc., That is meant for Customs and for international trade.

I understand that for the Government is thinking of following International Standard Classification of All Economic Activities which classifies the activities as A - Agriculture, B- Fishing, D-Manufacture, F-Construction, M-Education, etc., But this should be followed only at the time of registration of industries and services and should not be taken to the extreme limit of the invoices writing all the detailed classifications and sub-classifications. In that case again it will lead to undue complications merely for the collection of statistics. Simplicity cannot be surrendered at the alter of statistics.

If a positive list of services is maintained when the GST is introduced, it will keep all the evil elements of the present system namely the need to define services which need to be clarified by long circular modified by more and more circulars. When GST comes it must come in its full glory as it exists in New Zealand, Japan, Canada, etc. Just to study the methodology followed in these countries a team of officers may go there and learn for a substantial period the method followed by them in drawing up invoices, in maintaining statistics and such daily practices without dabbling into the theory part.

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