Tuesday, February 14, 2012

Service tax net set to be widened

Dear Comrades,

New Delhi, Feb. 12: The government plans to bring all services, except for a short negative list, under the tax net in this year’s budget. It also plans to raise the service tax rate by 1.7-2.3 per cent to bring it in line with the proposals under the goods and services tax (GST).
With GST hitting a roadblock because of objections raised by the BJP-ruled states, the finance ministry is trying to kickstart the process by broadening the service tax list in the Union budget. This will not require the approval of the states as the tax is levied by the Centre.
The government plans to have a short negative list of services, which will not be taxed against the current practice of having a list of services that are taxed.
At present, around 119 services are taxed. Under the new rules, all services would be taxed except those in the negative list.
The rate of taxation, which was earlier 12 per cent, was later rolled back to 10 per cent. With an education cess, the rate now stands at 10.3 per cent. This is likely to be brought back to 12 per cent to bring it in line with the taxes on goods. If the cess continues, the effective rate could be 12.36 per cent.
Officials said a discussion paper brought out in November had listed around 22 services that would not be taxed.
The list could be expanded with further inputs from various quarters, especially the business associations.
According to officials, services which would not be taxed are construction of single-unit dwellings and public infrastructure, insurance, toll roads, port and airports, postal service, security, NGOs, funeral parlours and mortuaries.
Schools and recognised education streams, including vocational training, metro and mono rails, second-class non-AC rail travel, buses, metered cabs and scooters, house rent up to Rs 1 lakh a month, transport of goods, warehousing, trade fairs and business promotion will be exempted.
Also to be exempted are clinics, except fitness or weight-loss ones; literary, artistic and dramatic copyrights; and services by advocates, trade unions, independent journalists, wire agencies, sportspersons and performing artistes, except as brand ambassadors.
Advertisements other than print, TV or radio, small-scale betting and gambling other than lotteries and organised games of chance find place in the negative list.
However, several service industries are against the proposals. The Film Federation of India has threatened a strike before the budget by cinema halls and multiplexes against the proposed move to place the industry in the service tax net.
North Block mandarins are keen to broaden the net as services account for 56 per cent of the country’s GDP (gross domestic product) and have been growing at near double digits, far exceeding manufacturing and farm growth.
Service tax collections have grown this year at 37 per cent compared with the 6.8 per cent growth in excise duties, which are imposed on manufacturers.
Analysts say if the entire gamut of services are taxed, growth can be 30-40 per cent and the tax can fetch the country as much as excise duties do.
Ultimately, the service tax will be fed into the planned goods and services tax — an all-India taxation regime which will subsume a large number of central and state levies. GST could spur GDP growth by 1-1.5 per cent annually, but is unlikely to be implemented this year.
North Block, which has tabled the Constitutional Amendment that would enable GST to come about in the last session of Parliament, has long been complaining that the BJP-run states of Gujarat, Uttarakhand, Chhattisgarh, Himachal Pradesh, Karnataka and Madhya Pradesh try to stall every move towards introducing the measure.
A consensus is essential as the measure has to be passed by a two-thirds majority in both houses of Parliament. The original deadline for rolling out the nationwide tax regime of April 2010 has gone, and it is unlikely the new deadline of April 2012 will be met either.

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