Dr. Sanjiv Agarwal
Taxation of services is now almost seventeen years old in India with over 120 services in the service tax net which have been added successively in last 17 years. While government proposes to introduce goods and service tax (GST) an hear future (not certain in 2010 atleast), in all likelihood, we may land up in a scenario where all services (barring a few as per negative list) are taxed to service tax in 2012 or when Good & Service Tax comes in.
India proposes to enter in the service tax regime where taxation of services will be based on a negative list of services. The negative list implies two things- one, a list of services which will not be subject to service tax and two, other than the services mentioned in the negative list, all other services will become taxable on supply of service.
While in the present scheme of things, India follows a selective approach where only identified services are taxed, it is now being felt that it would be desirable to tax services based on a negative list so that many untapped services are brought into service tax net.
Unlike goods, we do not have a definition of service but each of the taxable service is defined. Now, it is proposed to define a service as ‘any thing which does not supply of goods, money or immovable property’ meaning thereby that all types of intangible services, technical know how, secondments, intellectual property rights etc shall also be taxed. Even a right to use, construction activities, temporary transfer, lease, hire, right to enter any premises or an obligation to refrain from any act etc would be deemed to be a service. However, services of employees, services by constitutional authority or manufacturing activities will not be covered. Thus, any commercial transaction, if is not a good, money or immoveable property, may be taxed.
The negative list of services has been prepared on considerations such as administrative, contractual, economic and welfare. These include taxation of Government, diplomatic missions and international bodies, welfare of vulnerable sections of society, education, public health, public transport, services by non-profit entities, religious services, promotion of arts, culture & sports, transport of export goods, services for agriculture, animal husbandry , infrastructure development and services in exclusive state domain such as tolls, betting, lotteries etc.
The key issue remains as to how to define a service and how big or small should be a negative list? What could be the timing of such expansion of tax scope – now or at the time of GST? Should certain revenue generating activities of states also suffer service tax? How the taxes so collected are going to be utilized as negative list concept would substantially improve tax collections. There being no or lesser room for disputes, interpretation, tax planning and tax evasion, It should also improve efficiency in tax administration . It is also now the time to raise all such concerns to the Government as the proposal is being debated.