The government?s decision to introduce negative list on services will bring host of new services under the tax net, including non-compete fee, participation charges for attending a conference or event, acting in a movie and translation services. Finance minister Pranab Mukherjee has proposed to bring the concept of negative list ,under which all services except those mentioned in the list will be taxed. This would replace the existing provision of positive list, where 119 services are taxed.
According to the proposal, in case a company or any other person enters into a non-compete agreement with another person for a consideration then it would be considered a service and accordingly 12.3% tax will be applicable. Non-compete fees are paid to selling promoters to prevent them from entering the same business and increase competition to the acquirer.
The proposed negative list contains17 heads while 34 services have been kept in the exemption list. However, tax experts and finance ministry officials are clueless about the number of services that can now attract tax. One of the expert said there would be increase of only 15 to 20 services after the proposed negative list is implemented. According to Ernst & Young tax partner Bipin Sapra, ?The introduction of negative list is a structural reform of service tax law though the number of services would increase, the increase in revenue will not be substantial on account of this increase.?
In case of travel by AC trains, service tax has also been introduced. However, after removing the 70% abatement, the tax burden on passengers would effectively be 3.6%. Besides introducing negative list, the government has also increased service tax from 10.3% to 12.3%, thus making services expensive.
This will bring additional revenue of R18,660 crore to the coffers.The finance ministry has a target to mop up R1.24 lakh crore in the next fiscal from service tax in the next fiscal as compared to R95,000 crore in the current fiscal.
