Govt services may be taxed under GST
Paid government services, rail travel, renting of vacant land for commercial use, donations to educational institutions and some new services in construction and real estate sector may become taxable if a finance ministry concept paper on negative list of services is adopted.
The paper, released on Monday, has listed 27 broad categories of services in the negative list under nine different heads. It proposes to keep some of the services in areas of social welfare and public utilities, agriculture and animal husbandry, financial sector, transport, education and health in the negative list.
This means barring the services in the negative list, everything else will be taxed. This is in contrast to the existing method of taxation of specified services with each having its own description. The paper defined service as anything which does not constitute supply of goods, money or immovable property.
Finance Minister Pranab Mukherjee, in his Budget speech for 2011, had proposed to initiate an informed public debate on the subject to help the government finalise the approach to the GST (goods and services tax). However, some of the services which are not in the negative list may be exempted from service tax.
The negative list contains funeral, burial and mortuary agencies, interest paid on deposits by bank, services provided by independent journalists ans sportspersons, dividend on investments, copyright services, toll, betting and gambling, services provided by a political party, services provided by a trade union to its members, and religious services.
The paper has listed notified services provided by the government and its agencies under the negative list, but said many new services provided by the government for a fee or user-charge are likely to come into the tax net as a result of transition towards negative list.
“We cannot have GST if there are too many exemptions in the system. A long positive list can also have a problem. We cannot list every small service. So some of the services (which are not in the negative list) will come under taxable category but they may be exempted,” said a finance ministry official.
About 57 per cent of India’s GDP comes from services. After including construction, the contribution from services will come to about 63 per cent. At current prices, the contribution from services during 2010-11 comes to about Rs 50 lakh crore. The Centre imposes a 10 per cent tax on 119 services.
On a rough estimate, nearly 40 per cent of the total services will come into the tax net as a result of the proposed negative list. However, a large part of the informal sector would also remain outside the tax net due to the threshold exemption.
This would leave only about 60 per cent of the sector not covered by the negative list that is actually available for tax payment. Thus, the potential for effective taxation of services may be confined to about 20-25 per cent of the service sector contribution.
This is still a sizeable number, and will add significant numbers to the revenue though may not sound astounding as some sections believe it to be, the concept paper said.
The government has invited feedback, views and suggestions by September 30 on the concept paper prepared by a team of finance ministry officials with inputs from industry bodies like CII, Ficci, Assocham, and PHDCCI.