In the revised concept paper on negative list, the Central Board of Excise and Customs, the indirect taxes wing of the revenue department, also proposed to broaden the exemption for services relating to infrastructure projects which are meant for larger public good. If implemented, the would benefit the the construction industry where input tax credit is not available in all cases.
Government services would be exempt, but not those where they compete with the private sector.
So, insurance services, port and airport services, posts, trade fairs and exhibitions, business promotion services, construction/work contract, renting of immovable property, security services etc. would be taxed. As proposed earlier, services provided by political parties, trade unions, religious organisations and advocates would be exempt. Clinical services except fitness, weight reduction, cosmetic and plastic surgeries would also not be taxed.
Once the shift from the current practice of taxing services on a selective basis (positive list-based) to the negative list is implemented, tax revenue would pick for that very reason by 20%, a senior CBEC official said. The negative list of taxation is also in conformity with the proposed Goods and Services Tax (GST) although the government is yet to take a call on whether the new system of taxation of services would take effect from Budget 2012-13 or later, when the GST is ushered in.
In all, 22 categories of services would be there in the negative list, according to Friday's discussion paper.
Currently, 117 services are taxed at a rate of 10%. Service taxes are high-growth revenue source for the government, in a country where services account for more than half of the GDP.
The revised negative list has been put up for feedback from various stakeholders which can be sent till December 15.
Briefing the media, SK Goel, chairman, CBEC, said that the positive list as it exists today is not conducive for tax administration as it is prone to disputes. Nor does it lead to tax compliance.
Financial services like sale, purchase or acquisition of securities, debt, mutual funds which are not taxed at present will also be on the negative list. The revised list also includes dividends on investment, sale and purchase of foreign currency amongst banks and authorized foreign exchange dealers.
Providing relief to the common man, the revenue proposed exemption for non-AC second class railway passenger travel and travel by metro and mono-rail. Waiver would also be there for all public transport buses except tourist buses.
The revised list also includes construction work for specified infrastructure for larger public good and residential building comprising single dwelling unity.