AC rail travel may cost more in negative list of services

There could be rise in the cost of construction work, renting of vacant land and rail travel in air-conditioned coaches, if a set of government proposals on taxing services comes into effect.

The finance ministry on Friday came out with a revised discussion paper on a negative list for services that proposes to exclude 22 categories of services from the tax net, against 28 proposed in the earlier list. This will be a major shift from the current system that lists 117 services as taxable. The implementation of the proposals will lead to a 20 per cent jump in revenue from services.

The new paper — contrary to the this year’s Budget proposal of taxing health services (which was rolled back later owing to stiff opposition from various quarters) — proposes to keep health services in the negative list. There, everything, barring a few services listed out by the government, will be taxed.

Earlier this year, the government had proposed to impose service tax on 25-bed hospitals and diagnostic check-ups. At present, such health services are exempted from service tax.

The government now intends to tax only those services which are provided in relation to health and fitness, weight reduction programmes, health check-up and cosmetic or plastic surgery, according to the Central Board of Excise and Customs.

Only economic activity would be taxed, its chairman S K Goel said. “Anything, which is non-economic activity, will go in the negative list,” he told reporters here.

Kept in the negative list is rail travel in non-AC second class, any class by metro and mono-rail, public transport in buses on point-to-point basis, metered cabs and three-wheelers. Currently, there is no provision of taxing any passenger rail ticket. The government, however, has already announced service tax on rail freight, though it has not yet come into effect — courtesy, opposition from the railway ministry.

The services provided directly in relation to agriculture, horticulture and animal husbandry have been removed from the negative list proposed in the last discussion paper. However, agriculture and animal husbandry would remain the government’s priority sectors.

The impact of taxes on input services, wherever justified, would be considered for neutralisation through other means.

The negative list, responses to which are invited till next month, also proposed to exclude school education and recognised education from the tax net, but that would not be the case with placement services and donations. Also taxed would be the services where the government competes with private sector such as insurance, security, port and airport. Renting of personal dwellings is included in the negative list, only to the extent of Rs 1 lakh per month per dwelling to cover high-end apartments.

The negative list will include services like funeral, burial and mortuary agencies, interest paid on deposits by bank, services provided by independent journalists, dividend on investments, copyright, dramatic and artistic work, services provided by recognised political parties, advertisement other than those published in newspaper and broadcast by radio or TV or displayed in other electronic media.

In order to operationalise the negative list, the ministry has also moved place of taxation/supply rules that will determine the principles for the determination of location at which the services shall be deemed to be provided. These are also intended to be released for public debate shortly.