India is about to witness a transformation in its approximately two decade-old service tax regime hailed as a step towards the GST rollout and with the in-principle approval of the Empowered Committee of State Finance Ministers, the Negative List of services is set to make a debut this year.
The current service tax regime covers within its scope specified categories of services on which service tax is levied. This move epitomises alignment to the global practices of taxing services. The scope of the negative list for taxation of services encompasses a wide variety of transactions, hitherto untaxed either being not classified under a specific category or being exempt by virtue of a notification.
In this era of technological developments and innovative ways of conducting several businesses, there always seem to be a challenge to cover new services in the scope of notified taxable services. Until and unless the business idea gets large and the tax potential from the same reaches significance that warrants an inclusion, the services remain outside the tax purview.
While the concept paper issued in this regard provides a flavor of the proposed legislation, the wider implications seem to be still open to interpretation and speculation. This is in view of the fact that the successful implementation of the negative list of services does not depend merely on notifying the negative list but needs a complete changeover in the legislative and administrative provisions. The notification of the negative list needs to be accompanied by the changes in exemptions, CENVAT credit, abatement scheme, point of taxation, return forms amongst others. The role of the Government in successful implementation of negative list does not end with obtaining the assent of state finance ministers, which is only a step towards transforming the face of the taxation of services in this country.
{{/usCountry}}While the concept paper issued in this regard provides a flavor of the proposed legislation, the wider implications seem to be still open to interpretation and speculation. This is in view of the fact that the successful implementation of the negative list of services does not depend merely on notifying the negative list but needs a complete changeover in the legislative and administrative provisions. The notification of the negative list needs to be accompanied by the changes in exemptions, CENVAT credit, abatement scheme, point of taxation, return forms amongst others. The role of the Government in successful implementation of negative list does not end with obtaining the assent of state finance ministers, which is only a step towards transforming the face of the taxation of services in this country.
{{/usCountry}}The current service tax regime is characterised by soaring litigations arising from interpretation issues in levy of service tax and procedural hassles.
The concept of negative list is expected to bring down complexities and lay down a more lucid and hassle-free legislation. However, it would be too early at this stage to comment on the forthcoming legislation based on revised concept paper which may have its own set of challenges including the interpretation of what constitutes a “supply of service” and common activities constituting sale and services etc.
Also the objective of seamless credit mechanism can be achieved only if the CENVAT mechanism under the negative list of taxation of services undergoes suitable changes with limited restrictions on availability.
In order to achieve the desired objective and benefits of negative list, it will be critically important for the legislation to lend the necessary clarity by way of incorporation of corresponding amendments to the existing provisions.
(Prashant Deshpande is senior director, Deloitte Touche Tohmatsu India. Views expressed are personal.)