Revised Concept Paper on Taxation of Services on the Basis of Negative List Presented

The government’s indirect taxes body released in November 2011 a revised concept paper on taxation of services on the basis of a negative list, making some additions and deletion to the first paper published in August 2011.
22 services will be under the negative list, or exempt from tax, as against 27 proposed in the earlier draft.

India currently specifies the services that will be taxed. The shift to a negative list will mean that all services except those mentioned in the list will be taxed, providing clarity on services that will be taxed and widening the service tax base. The major sectors that remain excluded from services tax are financial sector, education, social welfare services, health and certain notified services provided by the government.

The revised concept paper proposed to exempt from tax healthrelated services, those relating to agriculture, horticulture and animal husbandry and passenger travel by non-AC second-class trains, metro and monorails. The negative list also includes include services like funeral, burial and mortuary agencies, interest paid on deposits by bank, services provided by independent journalists, dividend on investments, and transport of passenger in public transport.

Services are currently taxed at 10% rate.

The negative list approach will also help widen the tax base for services. The services sector constitutes more than 50% of GDP but service taxes are only 4-5% of GDP. Experts opined that the measure was from the fiscal front but bad for the industry. The incidence of indirect taxes is already very high in the country.