More goods than services likely to come under GST

The goods and services tax (GST) regime may have a negative list for goods and a positive list for services. The government would basically define goods that will not attract tax and services which will be taxed. It will be a deviation from the existing system of having a positive list for goods as well as services. In other words, most goods are to be taxed, while many services would be out of GST purview.

The Centre feels that putting services in the negative list would lead to unnecessary problems. There is no international classification for services, and it is for the government to decide whether something is a service or not. For goods, the government will have a negative list, as it is easy to define a good because of a harmonious system of classification.

“Services will have a positive list; otherwise, we will have to define a lot of items. It is easy to define a positive list. A negative list will lead to complications because one may get into areas one doesn’t know,” a finance ministry official told Business Standard.

States are divided on the issue. Though most states are believed to have agreed to the Centre’s suggestion, some say there should be a negative list to avoid unnecessary exemptions.

S Madhavan, executive director, PricewaterhouseCoopers, said there should be a negative list for services because it would be better to tax all services, except those in the negative list. For goods, he said, there should be a negative list if there is only one rate.

“One rate for goods is unlikely. (The empowered committee of state finance ministers had proposed two rates for goods, besides special rates for precious metals). In that case, there should be a positive list for goods… India is mature enough to have a negative list for services. Perhaps the government thinks that in a negative list, tax will be applied to all unintended services,” Madhavan explained.

The government began with taxing four services in 1998 and has got 115 services in the tax net today, including eight added in the recent Budget.

The government is planning to implement GST from April 1, 2011. The deadline was deferred from April 2010 because of differences between the Centre and states over crucial areas in the proposed indirect tax regime. Finance Minister Pranab Mukherjee will sit with the states in April to take forward the discussion on GST.