The finance ministry will soon put out a small list of essential services that will not be taxed at airports or ports, as it kicks off experimental enclaves of a comprehensive service tax regime that could be extended nation-wide later.

This will only give marginal relief to consumers of services travellers and businesses as most of the services that are currently out of tax net will face tax.

We will tax even non-taxable services but spare some essential services such as medical, education, pollution control and emergency services such as fire fighting, special services provided at time of emergency landing from the tax, the official said.

The change indicates the direction for the service tax regime as the country pursues a unified goods and service tax regime and a change from the positive list approach followed so far.
Globally, governments follow a negative list approach only services exempt from tax are mentioned explicitly and the rest face tax.

The ministry is expected to issue the notification shortly, putting into effect the tax from June this year. Service tax is levied at the rate of 10%. The budget 2010-11 had proposed to tax all services provided at port and airports.

Strictly interpreted this means any service provided at an airport or port will be levied service tax even if that service in itself may not be taxable elsewhere.

This would have brought essential services such as health and education provided, otherwise not taxed, under tax net at port or airport.

Exempting essential services within the airport will be a positive step towards implementing a jurisdictional service tax in right earnest. It is essential that the term service be defined in the statute for proper interpretation of the definition of airport service, said Bipin Sapra, partner, Ernst & Young.

Some other services that are provided and consumed at port and airport but are not generally taxed and also do not fall in the category of essential services will have to face tax, the official added. These include services such as short maintenance services.

However, services consumed by exporters that are exempted from tax will continue to enjoy their tax-free status. Abatement available in some services such as transportation will also be available if such a service is provided at port or airport.