In a move that could put burden on some service providers in the health and education sector, the Budget next year may widen the service tax ambit to include at least five to eight new services in the two sectors in the tax net. The Centre plans to bring more services in the tax net next year, finance ministry officials told FE. Currently, 117 services attract 10% service tax and the Centre wants to expand this list before the goods and services tax (GST) is adopted nationally. Currently, health services that attract a service tax are those where payments to the hospital have been made by the insurance company and some business to business services—where a company has a contact with a medical service provider for regular check-ups or treatment—and cosmetic surgery that was included in Budget last fiscal.

But health services offered by the private doctors, lab testing and diagnostic services are out of the ambit of service tax. The Centre is likely to target these services to complete the chain in the health sector. Similar services attract tax in several other countries.

In the education sector, while commercial training and coaching attract service tax, private colleges, schools and institutions are still exempt. Some degree and diploma courses from recognised universities are also exempt from service tax.

Tax experts suggested that introducing service tax on some health and education services could be a difficult due to sensitive nature of the sector and its impact on the common man. However, the sectors have huge revenue potential that will weigh heaviliy while deciding to expand the service tax net. “There is certainly huge potential in health and education sector. Though it is unlikely that government services in the sector would be touched but the Centre could explore the private service providers in this area,” said Prateek Jain, tax partner, KPMG . Considering the size and growth of Indian health and education industry, the move seems very possible. Especially when the charges by private service providers in both the segments are so high.

When asked about the exact number and names of the new services, a member of the Central Board of Excise and Customs (CBEC) said, the consultations are still going on in the finance ministry and the number of new services to be brought in the tax net are still being considered. “Going forward in the GST regime a broader tax base would be better so the move to introduce more services in both the sectors would in the direction to increase the service tax base for GST,” said Bipin Sapra from Ernst and Young.

With service tax being a comparatively newer taxation than any direct or indirect levy, the Centre is still in the process of clearly understanding and increasing the tax base according to the growing service sector in India. Service tax rate currently is at the rate of 10% on 117 services, including eight new services that were introduced in the Budget last year. Revenue collections from service tax is an ever growing chunk since the introduction of service tax in 2004. For April-November 2010, the collections were Rs 38,927 crore, up 18.2% over the previous year’s during the same period.

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October 2020