Positive list in service tax could return

A positive list for taxation of services might be back, though only for accounting purposes.

With the introduction of the negative list from July 1, the finance ministry prescribed a new accounting code for tax payment for all services, replacing the earlier 119 codes. Instead of the earlier system of a separate code for each service, all service taxpayers now have to pay under a single code.

The revenue department later realised that because of a single code, it was not getting information on the sector-wise break-up of what was paid. The issue was raised by chief commissioners and directors-general of service tax at a meeting with Finance Minister P Chidambaram last month. They said it was impossible for them to track service tax payments by sector due to the single accounting code, and wanted the earlier codes to be restored in the negative list approach, too, said an official.

“The finance minister is seized of the matter. Several options are being considered. One is to issue a circular to restore all the 119 codes, plus one more code for taxation of the remaining services, other than the negative list,” the official told Business Standard.

Analysts said service-specific codes helped the revenue department capture the contribution of a particular category — for instance, insurance, advertising or ports. Now, when a taxpayer files returns, he does not have to mention the service for which the tax is being paid.

“A unique accounting code for each service was a powerful tool for the government to track growth in various sectors and devise the audit and scrutiny strategy. In the new system, they may find it difficult to collate sectoral data,” said Pratik Jain, partner, KPMG.

In the negative list, all services barring a specified list of 17, are taxed by the government. While all the 119 services taxed earlier are being taxed under the new system, too, the revenue department can also levy tax on services not in the negative list. If the earlier codes are restored, there will be a need for a 120th code to tax residual services.

Now all taxable services, meaning those not in the negative list, are being taxed under the the new ‘1089’ code. The old codes are allowed only for payments related to the period before July.

Also, there are accounting codes for other receipts (interest, penalty) for each service. In the new system, a sub-head has been created for payment of penalty and the sub-head of ‘other receipts’ is meant only for payment of interest leviable on delayed payment of service tax. There is a sub-head ‘deduct refunds’, meant for use by the revenue department while allowing refund of tax.