Sukumar Mukhopadhyay: Mercilessly prune mega (service tax) exemptions list

The unofficial name of exemption list Notification No.25/2012-service tax dated 20.6.2012 of Service Tax is Mega Exemption List. Such a big list of exemptions is quite contrary to the idea of a comprehensive service tax. If the service tax is supposed to be comprehensive, which was the design propounded in the Concept Paper, it should have only a Negative List and not an exemption list. However, the government thought it better to have an exemptions list also since the Negative List covers only those services, which are not taxable at all and exemptions list covers those services which are taxable but are exempted due to contingencies such as pressures from lobbies or difficulty in collection.

Negative List cannot be altered except in the Budget but exemptions can be given or withdrawn any time. So, Negative List should contain items which are usually never taxed. Even if we accept it on principle, in effect, this has not been done. And exemptions have been given too generously. It was announced in the last Budget that simplification has been done as the number of exemptions has been reduced from 88 to 10. This is misleading because the mega exemption alone contains 39 services with sub-headings having between two and 17 items. It has also got 30 extra definitions (apart from the definitions section in the Act). So the story of simplification is highly exaggerated.

The mega exemptions have items and sub items which total up to more than hundred. So the complications continue as before in interpreting the exemptions.

This treatise aims to suggest remedy by removing these defects as below.

1. In the Negative List as in Section 66D, item (e) is “trading of goods”. Trading is not service. The heading itself of 66D says that it comprises services. So the question of including trading does not arise. It should be deleted and a separate clarification should be issued why it has been removed.
2. The same is true for item (f) “any process amounting to manufacture or production of goods” also.
3. The following items in the Negative List are such which do not basically deserve to be placed in the Negative List. One can understand the functions of the government, Reserve Bank of India, Diplomatic Missions and services related to agriculture being in the Negative List. But these items mentioned below are not of that nature. They should be deleted from the Negative List and placed in the exemptions list. The items are (g) selling of space or time slots for advertisements ….., (h) service by way of access to a road or a bridge …... (i) betting, gambling or lottery (j) admission to entertainment events … (o) service to transportation of passengers and (p) services by way of transportation of goods. Some of these exemptions should be abolished like (g), (h), (i), (j) and some portions of (o) and (p).
4. In the Mega Exemption List the item 1, namely, service provided to the United Nations should be transferred to Negative List.
5. Item six, namely, services provided by an Arbitral Tribunal, etc. should be abolished.
6. Item 8, namely, service by way of training and coaching in recreational activity relating to arts, culture and sports is very imprecisely worded. It should be abolished since it will be covered by threshold of ten lakh. If the earning is more than ten lakh, it should be taxed.
7. Item16, namely, service by performing folk artists, etc. should be abolished as this should be covered by the threshold.
8. Item 17, namely, services by journalists, PTI, UNI, should be deleted.
9. Item 18, namely, hotel accommodation should be deleted.
10. Item 22, namely, service by way of giving on hire to a State Transport Undertaking, motor vehicle meant to carry more than 12 passengers …. should be deleted.

Conclusion
I have given some examples here but Revenue should examine all exemptions and try to remove as many as possible. The Negative List should only contain services which are usually never taxed like those of Government, Reserve Bank, agriculture, United Nations. All other items in the Negative List should be removed to the exemption list which itself should be pruned mercilessly to make simplicity the main virtue.

 

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