TaxTMI 
TaxTMI 
TAXATION OF SERVICES BASED ON A NEGATIVE LIST OF SERVICES CONCEPT PAPER FOR PUBLIC DEBATE.
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....tioned in the negative list, all other services will become taxable which fall within the definition of the 'supply of services'. This can be contrasted from the present method of taxation that has detailed description for each taxable service and all other unspecified services are not liable to tax. The latter method of taxation is also referred to as taxation by way of a positive list. 2.2 The selective taxation of services by way of incremental additions over the years served well in the past in acclimatizing both the tax payers and tax administrators to the new levy. However, with considerable expansion of the list, the administrative challenge has multiplied manifold. Service tax has now gained considerable maturity and many practitioners of the subject believe that incremental approach to taxation is not suitable for providing a stable system for taxation of services that is at the threshold of getting subsumed into a comprehensive GST. 3.0 Contours of public debate: 3.1 Broadly the following questions can arise in a public debate on introduction of a negative list based comprehensive approach to taxation of services. Feedback based on these questions from all stakeh....
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....e Provider I is kept outside the tax chain the effective tax on the total supply goes up from 40 to 50 as the taxes paid at the previous stages are not available as tax credit at the subsequent stage. 4.4 As the untaxed supplies are treated exempt for the purpose of input tax credit rules, taxes paid on the inputs used in their supplies are required to be reversed under the prescribed rules. This further adds complexities both for the tax-payers and the administrators. 4.5 Such exclusions also lead to distortion of economic neutrality across similar or substitute supplies e.g. road vs. rail transportation or discourage outsourcing by incentivizing self-supplies, and are thus not conducive to making the optimal choices in the economy. Moreover the one-time taxation of the service sector obviates the need for year-after-year incremental changes. 4.6 On the other hand there are significant advantages of positive list in so far it has already attained a certain level of awareness and stability in administration. The categorizations of services is also useful for a variety of purposes e.g. import and export rules, Cenvat Rules and Point of Taxation Rules or where ever any diffe....
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....erty. Tax will be imposed on supply of services. A supply is a transaction and transaction involves two persons. Transaction involving goods, money and immovable property is excluded from the meaning of supply of service. Inclusions and exclusions support and clarify the above definition of supply of services. 6.0 Exclusions : 6.1 Supplies of goods , money and immovable property are the principal exclusions, in the proposed scheme. The expression 'goods' as defined in clause (7) of section 2 of the Sale of Goods Act, 1930, can continue to be part of the service tax framework as at present. According to the Sale of Goods Act, 1930: "Goods" means every kind of movable property other than actionable claims and money; and includes stock and shares, growing crops, grass, and things attached to or forming part of the land which are agreed to be severed before sale or under the contract of sale. 6.2 It is important to mention that supplies which are deemed to be sale of goods in terms of Article 366 (29A) of the Constitution in the case of specified contracts will stand excluded as goods. These relate to goods portion of the supplies in a works contract, contracts of hire purc....
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....tion to the employment of the person is an important exclusion. However any service rendered by an employee in another capacity will constitute a supply of service. Similar position is proposed in respect of constitutional functionaries, some of whom may not be strictly in the position of an employee, as also members of Union and State legislatures and local self-government. 6.8 Any supply that amounts to manufacture or is includible in the value of the goods under the Central Excise Act is also kept outside the purview of the definition of service as this is liable to Central Excise duty as goods. 7.0 Inclusions : 7.1 A number of specific entries have been specified in the inclusive portion to provide greater clarity to the new approach to taxation of services. Right to use immovable property falls within the domain of services. Also temporary transfer or permitting the use or enjoyment of any intellectual property will constitute supply of service. The obligation to refrain from an act, or to tolerate an act or a situation, or to do an act will also constitute service. Delivery of goods by way of hire purchase or installments is declared by the Constitution to be deemed ....
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....ic charge to the recipient and thus shall not be liable to tax. However the other supplies could be classified as follows: i. Where services are provided at market rates and compete with private entities; ii. Where services are provided at concessional rates but compete with private entities; iii. Where services are provided exclusively or predominantly by government. 8.3 When Government is engaged in providing services in purely commercial areas or where similar services are provided by private enterprise, it is necessary to provide equitable tax treatment. W hen government supplies compete with the supplies made by private enterprise, if tax is levied only on supplies made by private enterprise, it amounts to discrimination and economic distortions will be inevitable. 8.4 Where services are provided by Government or its extended agencies more or less exclusively many experts argue that such services should also be subjected to tax. The counter argument is that such taxation would lead to increase in administrative work load without commensurate increase in net revenue when the same amount can be collected by increased user charges. With increasing privatization and....
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....accessed by persons with insurance cover or other affluent sections of society. Services provided by such establishments to needy and economically weaker sections could be exempted as per agreed criteria. Public hospitals could be kept outside the levy as they largely address the needs of the weaker sections. The issue thus requires a well-rounded debate on all the various aspects. For the moment two options are indicated but there can be many varied variants for the treatment of this sector. 8.8 Similar arguments are also made in respect of certain streams of education. Services provided by international schools and expenses recovered by certain educational institutions over and above the prescribed charges, including capitation fees or donations are areas that are often cited for the purpose of levy of service tax. 8.9 It is acknowledged that some of the areas specified in the proposed negative list require greater elaboration. However the same has not been attempted at this stage in order to obtain perse and unbiased views during the course of the public debate. 9. Revenue Impact 9.1 It is well known that nearly 57% of India GDP comes from services. After including c....
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....aper is placed in the public domain for the widest possible consultation, extensive debate and to seek views and feedback of all stakeholders. The Paper has been prepared by a team of officers with inputs from CII, FICCI, ASSOCHAM and PHDCI. Views expressed here do not reflect the position of the Government of India in any manner. Any comments, suggestions or feedback may be given by September 30, 2011 to Shri Shobhit Jain, OSD (TRU) at [email protected] , Tel: 011-23095590; fax: 011-23093037) Annexure Possible Negative List of Services Sector S. No. Negative List Remarks 1. By specified persons 1. Notified services provided by: a. Government* and Judiciary; b. RBI; and c. government regulatory bodies List of these services or the principle for exclusions will be worked out based on the outcome of the debate 2. Services provided by inpiduals to Government in relation to their representation on any council, commission or similar body set up by the Government 3. Service by UN, international bodies, diplomatic missions under diplomatic and consular arrangements as per laid down conditions (details to be sp....
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....ial use, including government hospitals and educational institutions c) residential building comprising of a single dwelling unit; d) homeless shelter, orphanage, old-age home, rehabilitation & de-addiction centre, child day-care home or place of worship 15 Renting of personal dwelling for residential use of a person below a threshold (to be finalized after debate) and when used otherwise as a hotel, inn, guest house, club or campsite or similar accommodation 7. Education 16 Pre-school, school and recognized education** and vocational training recognized by NCVT except as capitation fee, donations or similar charges in relation to admission 8. Health 17 Option 1: Services provided by a clinical establishment with a turnover below Rs 4 crore in the previous year Option 2: Hospital, medical care, diagnostic, para-medical services except in relation to preventive health check-up within the precincts of a clinical establishment, cosmetic or plastic surgery Services to specified sections and by public hospitals may be exempted under option 1. 9. Others 18 Copyright services of original literary, dramatic, m....