Decks have been cleared for the implementation of negative list of services from next fiscal with the Empowered Committee of State\’s Finance Ministers on Goods and Services Tax (GST) on Monday giving its in-principle nod for the move with few riders.
The negative list would replace the existing practice of having a positive list, where about 120 items are taxed. The list is being finalised to clear the road map for the introduction of GST that would subsume all Central and state taxes and levies into uniform system of taxation.
The committee while endorsing the list finalised by Union finance ministry has said that items where there is overlapping of taxes between the centre and states should be kept in the negative list. It has also favoured keeping agriculture, horticulture and dairies services in the negative list as there is a strong demand from the states for the same.
After the empowered committee meeting (EC), its chairman Sushil Kumar Modi said, ?The committee has given in-principle approval for the negative list on services.? He, however, said that the approval is conditional upon Centre keeping items where there is overlapping of taxes between the Centre and states in the negative list. These services include construction services, entertainment tax, services on air-conditioned restaurants, among others.
Commenting on professional tax, Modi said that the ceiling of Rs 2,500 on such taxes should be scrapped by amending the Constitution. Under the Constitution, states are empowered to levy tax on profession and employment. However, the cap was imposed in 1988 and since then it remain unchanged. The EC wants this ceiling to be removed so that each state can fix their own cap and amendment to Constitution would not be necessary each time.
In the negative list, almost all services except a select few would under the tax net. Currently, 117 services are taxed at a rate of 10 per cent.
Service taxes are a high-growth revenue source for the government as the segment accounts for more than half of the country?s GDP. In November last year, the government issued a revised draft of the negative list of services and asked for feedback from various stakeholders by December 15. The first draft was released in August 2011.
According to a finance ministry official, once the shift from the current practice of taxing services on a selective basis to the negative list is implemented, tax revenue would pick up by 20 per cent.
According to the revised paper, 22 categories of services would figure in the negative list. The services added to the proposed negative list in the new draft include some services relating to agriculture, horticulture and animal husbandry, services provided by freelance journalists, government news agencies and advertisements in media other than newspapers and television. In the first draft, 27 services were kept outside the tax net.
