Letters: More clarity needed

A three-rate service tax structure will inevitably lead to classification disputes

Even with near unanimity between states and central revenue authorities on compartmentalised administrative control over suppliers of goods and services, it is still not clear how the entities would be identified on the basis of the agreed ratio.

While states were clamouring for 100 per cent administrative control over assessees having annual turnover of less than Rs 1.5 crore, despite having no experience in administering a complex service tax, the expectation was that dual control over assessees with higher turnover would not be an issue. It is therefore surprising that while the Centre would have control over 10 per cent of the smaller units, control over the bigger ones, too, would have to be shared equally between the Centre and states. 

If this is a compromise formula agreed upon by the finance minister in his eagerness to roll out the goods and services tax (GST) by July 1, it is bizarre given the confusion among tax administrators and assessees alike. Does the GST Council have the benefit of inputs from all stakeholders — including the field formations of both central and state tax authorities — on this contentious issue? More clarity is needed. 

To compound the confusion, the GST Council is now said to be contemplating a three-rate service tax structure instead of a flat rate for all services, barring some eligible for abatement. This would inevitably lead to classification disputes — the antithesis of an ideal tax regime. 

It may be argued that if goods can be taxed at different rates depending on the ultimate consumers, why the same principle may not be applied to services, too. On the face of it, the argument is attractive. Whether such a radical departure from the practice since inception of a single-rate service tax regime  would usher in a hassle-free GST regime is debatable.

S K Choudhury | Bengaluru Letters can be mailed, faxed or e-mailed to: 

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