Services provided by institutions like the IIMs and IITs to campus recruiters in return for a fee may be in for taxing times. Besides, those provided by self-employed engineers, services in relation to mergers and acquisitions may also come under the tax net. This is according to the two new circulars, issued by the finance ministry on Tuesday, aimed at simplyfying tax procedures and widening the ambit to include more services.
The government has also clarified which services will attract tax and under what category. For instance, hotels and restaurants that rent out rooms have been covered under the ?madap keeper service category? and are liable to service tax. Similarly, various services have been kept out of the service tax net, such as people buying and selling foreign exchange, without charging any commission.
At present, 100 services have been specified as taxable. These two circulars will supersede about 200 existing circulars issued since 1994 when the service tax was first introduced. While the service tax rate has been kept at the existing level of 12%, the government has brought in some procedural and technical changes for levying service tax.
The Centre has consolidated the existing norms to bring in more clarity on service tax issues. Analysts said while status quo has been maintained on most of the areas falling under the service tax category, there have been some important modifications. For instance, the Centre has now made it mandatory for companies seeking service tax exemption to register with the tax department after their annual turnover crosses Rs 7 lakh, even though tax exemptions are applicable till the Rs 8-lakh- turnover mark.
This has been done to ensure that most service providers are registered with the government by the time they hit Rs 8 lakh sales figure. Officials in the finance ministry expected the new circulars to result in increased tax collection and to widen the service tax net.
The new circulars are unlikely to impact sectors like insurance and the mutual fund industry. ?The new norms have kept the existing system intact where an asset management company (AMC) is required to deposit the service tax with the government. However, this is unfair and government should have mandated AMCs? distributors to register with the service tax department and deposit the tax. That would have benefitted both the AMCs and about 47,000 small distributors in the country,? said Dhirendra Kumar, CEO of Value Research, a MF research company.
Some analysts said that several contentious issues like taxation of export and import of services had not been dealt with adequately by the new circulars.