Finance minister Pranab Mukherjee has given approval to the revenue department to go ahead with the negative list on services so that it could be implemented from the next fiscal. The list is important to roll out a uniform goods and services tax regime that the government intends to introduce soon.
At the meeting with finance secretary RS Gujral, CBEC chairman SK Goel and other senior officials of the revenue department on December 20, the minister asked the department to work on the implementation of the new system.
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%. Service taxes are a high-growth revenue source for the government in a country where services account for more than half of the GDP.
Last month, 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 this year. According to a finance ministry official, 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 up by 20%.
However, the official said that though the finance minister and revenue department want to implement the negative list from next year, the political repercussion of the new list could prevent its introduction. However, a major stumbling block in the form of Assembly elections in five states ? Uttar Pradesh, Uttarakhand, Manipur, Punjab and Goa ? has been removed by the Election Commission as the process would be completed just in time for the Union Budget.
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 compared to the previous one 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 TV. In the first draft, 27 services were kept outside the tax net.
Besides these, government services would be exempt. However those where they compete with the private sector would not be exempted. Hence, 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.
In the revised paper, 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 list would benefit the the construction industry where input tax credit is not available in all cases.
In May this year, the finance ministry initiated a public debate on the issue of a negative list for taxation of services as announced by the finance minister in the Union Budget 2011-12. Major industry bodies like Ficci, Assocham, PHDCCI, CII and academic institutions like NIPFP were requested to participate and also anchor the public debate on the subject by sending their suggestions.