Govt widens service tax base from today

In a move that may bolster tax revenues and burden the common man simultaneously, the government has decided to tax all services, barring a few in the negative list, at the rate of 12 per cent from Sunday.

The negative list features 38 services exempted from tax. Till now, only 119 services under the positive list were taxed.

The fate of service tax on rail freight and passenger fare is, however, not clear. Railway Minister Mukul Roy, in a letter to Prime Minister Manmohan Singh who currently holds the finance portfolio, asserted that his ministry will not introduce the tax on the stipulated date.

The negative list comprises services offered by the government or local authorities.
Some other services included in the list are related to agriculture sector, trade, transmission and distribution of electricity, primary and vocational education, funeral, burial, mutate services, transportation of the deceased, metered taxis, auto rickshaws, betting, gambling, lottery, entry to amusement parks, transportation of goods or passengers and electricity transmission or distribution by discoms. The government is confident that with expansion of the service tax base, the Central Board of Excise and the Customs can achieve the collection target of Rs 1.24 lakh crore in the current fiscal.

The Centre collected Rs 97,000 crore in service tax during 2011-12. It expects that the switch over to the negative list-based approach will generate higher revenues in view of the extended tax base and increase in service tax levy from 10 per cent to 12 per cent.

The negative list has also been widely appreciated by people who believe that the move will help in smooth introduction of the goods and services tax.

“Taxation of services based on a negative list is clearly a positive development. For this change to be a success, it is fundamental that the government considers views of its citizens and develops a model law that is easy to implement, does not lead to double taxation and is not couched in a dilemma of interpretational concerns,” said Ernst and Young.

However, analysts said the move will fuel another round of inflation and the common man will suffer more than ever before. For example, services rendered by a hospital will now be charged, leading to inflated hospital bills. Similarly, people travelling by bus will have to shell out extra money for service tax.

Besides, if service tax on rail freight is introduced, prices of electricity, steel, cement and real estate will be affected, said economy watchers.