Black money: We can't make details of Indian account holders public, says Pranab - The Times of India

Black money: We can't make details of Indian account holders public, says Pranab - The Times of India:

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GOVT MAY FACE RS. 25,000-CRORE DIRECT TAX SHORTFALL IN 2011-12

It is a staggering amount staring at the government: a possible Rs.25,000crore shortfall in the direct tax collection from the Budget target in the current financial year. A comparison of the direct tax mop-up trend during the first eight months of the financial year with the previous two years’ clearly indicate that the net direct tax collection in 2011-12 would be around Rs.5,00,000 crore as against the Budget target of Rs.5,32,651 crore, according to a senior revenue department official. “As per the calculations made by the department, at least 50 per cent of the Budget target should have been collected by November. But it is only 44 per cent,” he says. “The realisation made during this period gets doubled in the last four months of the financial year.” The official explains that the gross tax collection till November in the current financial year stood at around Rs.3,05,000 crore. This should get doubled to about Rs.6,10,000 crore so as to meet expectations. As the refunds in the current financial year is expected to be around Rs.1,05,000 crore, net direct tax mop-up would be around Rs.5,05,000 crore in the current scenario, he said. The official stresses that the Central Board of Direct Taxes (CBDT) is trying its “level best” to meet the Budget target of Rs.5,32,651 crore, but the current trend is “clearly hinting” towards a shortfall of Rs.25,000 crore. The net direct tax realisation during April-November last year was at Rs.2,16,628 crorse. The figure meant that authorities had crossed 50 per cent of the Budget target of Rs.4,30,000 crore. As for 2009-10, the net direct tax mop-up in the pertinent period was at Rs.1,83,822 crore; this was also around half the Budget target of Rs.3,70,000 crore. In the current financial year, however, it has been Rs.2,35,333 crore, which is 44.2 per cent of the Budget target of Rs.5,32,651 crore. The refunds during April-November have been close to Rs.70,000 crore. Another revenue department official says there is more to the problem. For, the initial indication of direct tax mop-up in December was itself not encouraging. This is significant, as the CBDT is pinning hopes on the third instalment of advance tax collection due on December 15. This, when the government is already reeling under pressure due to a likely shortfall in disinvestment and telecom spectrum revenue targets on the one side and a ballooning petroleum and fertiliser subsidy bill on the other. Thus, the impending slippage on the direct tax front is set to add to its woes in keeping the overshooting of the fiscal deficit target of 4.6 per cent of the GDP to minimum. Analysts and tax experts feel the CBDT will resort to measures including stepping up the investigation process and now initiate search and seizure operations. “The objective,” notes an expert, “will be to collect immediate revenue.” Income tax department officials say their office, keeping in mind the sluggish tax collection situation, has already initiated measures to increase the revenue realisation. These include the monitoring of advance tax payments of top cases and assigning quarterly targets for disposal of pending cases for early recovery of demands. “We are using all the information available with the department,” reveals an official. “They have been accumulated from various sources, including ones received from abroad to identify tax evasion. The idea is to collect as much as possible, so that at least the Budget target could be met.”

 - www.business-standard.com

GOVT LIKELY TO MISS DIRECT TAX COLLECTION TARGET

The economic slowdown is likely to take a toll on meeting the Budget estimate target of direct tax collections in the current fiscal. “Not at all. How can I be confident (of meeting the Budget estimate) when there is a slowdown? It will be difficult...now advance tax will come, let’s see what happens in the next instalment,” the CBDT Chairman, Mr M.C. Joshi, told PTI on the sidelines of an international tax conference here today. The Finance Ministry had in October revised the Budget estimate of direct tax collections upwards by Rs 53,000 crore to Rs 5,85,000 crore. The revision was intended to bridge the shortfall that might occur due to reduction in customs duty on crude oil to offset the price rise. Net direct tax collections rose 8.63 per cent during the first eight months (April-November) of the current fiscal. “Now the growth rate is 8 to 9 per cent compared to last year. To breach the target, you need a growth rate of 27 per cent (in direct tax collection). We are not comfortable...,” he said. The Income-Tax Department has been able to achieve only 44 per cent of the Budget estimate till now, a senior official said earlier this week. Net direct tax collections grew 8.63 per cent to Rs 2,35,333 crore during the first eight months of this fiscal. It stood at Rs 2,16,628 crore in the same period of the previous fiscal, according to official sources. The Income-Tax Department provided refunds to the tune of Rs 68,669 crore during the period against Rs 37,640 crore in the corresponding period last year. On whether additional steps were being taken to meet the target, Mr Joshi said: “We are utilising information better. We are looking at the corporate sector, the top 3,000 companies as of now. They generate 70 per cent of our revenue. Looking at them, how they are working...” Gross corporate tax collections were up 19.61 per cent at Rs 1,99,317 crore during April-November against Rs 1,66,638 crore in the same period last year, the sources said. Similarly, net personal income-tax was up 14 per cent at Rs 88,567 crore.

 - www.thehindubusinessline.com

AMNESTY LIKELY FOR ASSETS CONCEALED ABROAD

AMNESTY LIKELY FOR ASSETS CONCEALED ABROAD

The Government may offer an “Offshore Voluntary Compliance Scheme” for undisclosed bank accounts and assets held abroad. “With so many ways to get information, this is the right time to think about such a scheme,” said a senior Finance Ministry official. He, however, clarified that the tax authorities may not insist on the money being brought back into the country or invested in specific areas. However, “the Government may consider levying a penalty at the minimum rate of 100 per cent,” the official said. The penalty rate on tax dues ranges from 100-300 per cent The broad contours of the scheme will be similar to the various Voluntary Disclosure Information Schemes (VDIS) offered for undisclosed incomes/assets held in India. But the authorities may not ask for disclosure of the money's source.

NO immunity from prosecution

Also, payment of tax and penalty would not give any immunity from criminal prosecution, the official clarified. An expert group, headed by the Central Board of Direct Tax (CBDT), had suggested an amnesty scheme for undisclosed accounts and assets held by resident Indians abroad. But since information about such accounts was not readily available, it was felt that such a scheme would not be feasible. Suggestions for such a scheme were also made during the meeting between the Finance Minister and top industrialists on August 1. According to the official, once the tax authorities get information from the Organisation for Economic Co-operation and Development, the Income Tax Overseas Unit, the Tax Information Exchange Agreement and media reports, it will approach the person concerned, who can refuse to accept the fact, but only if he/she has evidence. If the information is proved correct, a tax demand will be raised. And, if the person concerned refuses to pay, he/she can be prosecuted.

The Government has signed a tax information exchange agreement with five nations, including Cayman Islands and the Bahamas. Of these, four are in place and 17 more are expected to be signed. So far, nine VDISs have been floated, starting in 1951; the last one was in 1997. The last scheme is estimated to have collected Rs 10,100 crore as tax.

Courtesy - www.thehindubusinessline.com

SERVICE TAX PRIMER

A small write up on some basic aspects of service tax is given below:

Which is Act governing Service Tax?

The Service tax is governed by The Finance Act, 1994, as amended from time to time. This is the only tax law which has no separate Act. However, under the provisions of The Finance Act, 1994, several rules are enacted like, Service Tax Rules, 1994, Cenvat Credit Rules, 2004, Service Tax (Determination of Value) Rules, 2006, Export of Service Rules, 2005, etc. Some of the provisions of Central Excise Act, 1944 are also made applicable to service tax especially in respect of assessment, recovery of tax, penalty, appeals etc.

Service tax is applicable only on the 117 services specified in the Act and your service does not fall in any of those services, you are out of purview of service tax.

Who should take registration under Service Tax Law?

Section 69 of the Finance Act, 1994 gives the power to the Central Government to specify the persons who are liable to take registration under Service Tax. Accordingly, the Government by Notification No. 26/2005, specified that all input service distributors and all other persons whose aggregate value of taxable service in a year exceeds Rs. 9 Lakhs should take a registration. This means that you have to take registration immediately on your turnover crosses Rs. 9 Lakhs, though you have to collect and pay service tax only if your turnover exceeds Rs. 10 Lakhs.

How can I take the registration?

To take registration, you have to submit the application in Form ST-1 with your constitution document (Memorandum of Association or Partnership Deed, as the case may be), copy of PAN card, proof of address, and proof of identity for directors etc. However, these requirements can vary from range to range, as some range superintend may ask more documents for registration. There is no specified list of documents.

Now the registration is also made electronic. For that you go to www.aces.gov.in and register online. In that case, you have to take a print out of the form after submission and deliver to the range superintendent with the required attachments.

Registration should be taken within 30 days from the date of providing taxable service or date of reaching the threshold limit of Rs. 9 Lakhs turnover.

Service tax registration is given for each premises or offices from where an assessee is providing taxable services and raising invoices for the same.

If you have multiple branches at multiple location and you plan centralised billing, you can take a centralised registration.

A single registration is sufficient, even if the applicant is providing more than one taxable services. But he has to mention all the services being provided in the application form.

What are the statutory obligations, once you are registered under Service Tax?

The service provider is required to collect the service tax from the service receivers and remit to the Central Government. The major statutory obligations are given below:

1.      To collect the service tax due and remit the same within the due date to the Government - Companies have to remit the service tax on a monthly basis and all other assessees have to remit on quarterly basis. The due date is 5^th of the succeeding month for companies and 5^th of the month succeeding the quarter in the case of all others. (In the case of electronic payment, 6^th). But in the case of the last month/quarter, the due date is 31^st March, for all cases.

2.      To file the half yearly service tax return within 25^th of the month following the half year- This means you have to file the return in Form ST-3 on or before 25^th of October and 25^th of April, every year.

3.      You have to file the return even if you do not have any taxable services during the period, so long as your registration is active.

Who is liable to pay Service tax?

Generally, service tax is payable by service provider.

But in the case of Goods Transport Agency (GTA), import of services, Sponsorship Services and in the case of agents of mutual fund and insurance, service tax is payable by service receiver. This is called “Reverse Charge Mechanism.”

What are the consequences of not filing the return?

Non-filing of return will attract heavy penalty as per the amendment made in the last budget. The penalty is at the rate of Rs. 100/- per day of default subject to a maximum of Rs. 20,000/-

Further, if it is proved that the default is made knowingly, the department can impose prosecution proceedings also.

Though I took, the registration, my turnover is below the threshold limit. What should I do?

In this case, the assessee has 3 options:

1.      He can continue to collect the service tax, remit the same in time and file the half yearly returns in time, just like any regular assessee. OR

2.      File the half yearly returns in time showing the turnover which is below the threshold limit of Rs. 10 Lakhs as exempted turnover. In this case, he will not be liable to pay any service tax, provided, he has not collected service tax from his clients.

3.      He can surrender the registration and escape from the procedural requirements. He can surrender the registration on line in www.aces.gov.in and return the certificate in original to the jurisdictional Superintend.

I took the registration, but I could not start the business. What should I do? Can I cancel by registration?

If you have not started your business and there are no immediate plans to start it also, you can surrender your registration as per point no. 3 above.

What is CENVAT Credit?

CENVAT Credit is a mechanism by which assessee will get credit of some of the duties and taxes paid for providing taxable services. It is governed by Cenvat Credit Rules, 2004.

A service provider can take credit of service tax paid on input services, excise duty paid on input materials, Additional Duty of Customs leviable under section 3 of Customs Tariff Act on imported inputs and excise duty paid on capital goods. This credit can be set off against his service tax liability and the balance amount only has to be remitted.

He has to give the details of cenvat credit taken and utilised in the half yearly returns.

If the output service is exported, the service provider can claim refund of the accumulated Cenvat Credit.

Should I issue an invoice?

Yes; as per Rule 4A of Service Tax Rules, 1994, every service provider is bound to raise an invoice within 14 days from the date of completion of taxable service.

There is no prescribed format for invoices. But the invoice should contain at least the following details:

• Serial Number
• Name, address and registration number of the service provider
• Name and address of the service receiver
• Description, classification and value of taxable service provided
• The amount of service tax payable – showing separately, the service tax, Education Cess and Secondary and Higher Education Cess

Service tax should be mandatorily shown in the invoice separately. This will help the service receiver to avail the Cenvat credit of the same.

What is the value of taxable services?

As per the Service Tax (Determination of Value) Rules, 2006, the ‘Value of Taxable Service’ means the gross amount received by the service provider for the taxable service provided of to be provided by him.

Tax is payable on the on reimbursement of expenses which are part of service, but not on payments made by service provider as ‘pure agent’ of service receiver.

For certain specified services, a specified percentage of abatement is given from the total value of services.

Rate of service tax and interest on delayed payment

Service tax is payable at the rate of 10% on the value of taxable services. In addition to this, Education Cess at 2% and Secondary and Higher Education Cess at 1% (on the service tax) is payable,  making the total service tax rate to 10.30%.

In case of works contract, instead of paying 10%, assessee has the option to pay 4% on the gross value of contract including the value of materials.

The interest payable on delay in remittance on service tax is:

• 15% in the case of assessees whose turnover in a year is Rs. 60 lacs or less; and
• 18% in other cases

In addition to the interest, assessee will be liable for penalty provisions also.

Penalties under Service Tax

Penalty for major offences imposable on:

• Non-registration or delay in registration – RS. 200/- per day – minimum Rs. 5000/-
• Penalty for late payment of service tax – minimum Rs. 200/- day or 2% of the tax payable, whichever is higher.
• Non filing or delay in filing – Rs. 100/- day subject to a maximum of Rs. 20,000/-
• Suppression of Value of Taxable Services – 200% of tax payable

Defaulters beware!!! Three more credit information Companies .....

We were aware of CIBIL which has become the nightmare of defaulters. Now the Govt. has given license to 3 more credit information Companies viz. M/s Experian Credit Information Company of India Pvt. Ltd. M/s Equifax Credit Information Services Pvt. Ltd. and M/s High Mark Credit Information Services Pvt. Ltd. under the Credit Information Companies (Regulation) Act, 2005.

RBI has in its cicular dated 05.09.2011, directed all banks and financial institutions to submit the quarterly list of suit-filed accounts of Rs.1 crore and above, classified as doubtful or loss, and wilful defaulters of Rs. 25 lakhs or more to CIBIL and/or any other credit information companies.

So the credit information exchange market is getting hotter!!!!

The full text of circular is given below:

SUBMISSION OF CREDIT INFORMATION TO CREDIT INFORMATION COMPANIES - DEFAULTERS OF RS. 1 CRORE AND ABOVE AND WILFUL DEFAULTERS OF RS. 25 LAKH AND ABOVE - DISSEMINATION OF CREDIT INFORMATION OF SUIT-FILED ACCOUNTS

CIRCULAR NO. DBOD.NO. CID.BC.30/20.16.042/2011-12, DATED 5-9-2011 

Please refer to our Circulars DBOD.No.DL.BC.111/20.16.001/2001-02, dated June 4, 2002 regarding submission of credit information to Credit Information Bureau (India) Ltd. (CIBIL) and DBOD No. DL.BC.95/20.16.002/2003-04, dated June 17, 2004 regarding the Dissemination of Credit Information - Role of CIBIL.

2. As you are aware, Certificate of Registration (CoR) has since been issued to 3 Credit Information Companies (CICs), viz., M/s Experian Credit Information Company of India Pvt. Ltd. M/s Equifax Credit Information Services Pvt. Ltd. and M/s High Mark Credit Information Services Pvt. Ltd. to commence the business of credit information under the Credit Information Companies (Regulation) Act, 2005.

3. You are advised to submit the quarterly list of suit-filed accounts of Rs.1 crore and above, classified as doubtful or loss, to CIBIL and/or any other credit information company which has obtained CoR from RBI and of which your bank is a member.

4. In terms of Para 2.9 of Master Circular on Wilful Defaulters dated July 1, 2011, Banks/FIs have already been advised to submit the list of suit-filed accounts of wilful defaulters of Rs. 25 lakh and above as at end-March, June, September and December every year to CIBIL and/or any other credit information company which has obtained CoR from RBI and of which that bank is a member.

5. Further, we advise that the above CICs have been advised to disseminate credit information covering data supplied by banks/FIs on such suit-filed accounts on their respective websites.

PPF Limit is increased to Rs. 1 Lakh

One of the best investment options for a taxpayer, mixing high returns and tax benefits is Public Provident Fund. However the investment per person was limited to Rs. 70,000/- and the Govt now increased the limit to Rs. 1 lac. Readers may remember that the investment in PPF will qualify for deduction under section 80C of the Income Tax Act.

The relevant Press Release is given below:

PRESS RELEASE, DATED 6-9-2011

The Committee on Comprehensive Review of National Small Savings Fund (NSSF) headed by Deputy Governor, RBI has recommended revision of certain provisions of PPF Scheme, 1968 and benchmarking of interest rates on various small savings schemes with the secondary market yields on Central Government securities of comparable maturities with suitable spread.

The Committee has recommended increasing the deposit limit under PPF Scheme from existing Rs. 70,000 to Rs. 1 lakh per annum and fixing of rate of interest on advances against deposits in PPF scheme at 2 percentage points as against the prevailing interest rate on such advances at 1 per cent.

The Committee has further recommended benchmarking interest rate on small saving schemes to interest rate on Government securities of similar maturities with a positive spread of 25 basis points on all schemes except for 50 basis points for 10 year NSC and 100 basis point for Senior citizens Savings Scheme. Recommendations of the Committee have been referred to State Governments and concerned Ministries/Departments of Central Government for their comments.

This information was given by the Minister of State for Finance Shri Namo Narain Meena in a written reply to a question raised in Rajya Sabha today.

Foreclosure charges for Home Loans banned

Press Information Bureau

Government of India

Ministry of Finance

06-September-2011 18:09 IST

Levy of Penalty on Foreclosure of Home Loans

Government, in May 2010, advised Public Sector Banks, Indian Banks’ Association and National Housing Bank that no pre-payment charges may be levied by the lending institutions when the loan amount is paid by the borrowers out of their own funds; and if any pre-payment charges are to be imposed on housing loans, the same need to be reasonable and transparent and not out of line with the average cost of providing these services.

The Public Sector Banks (PSBs) have reported that by and large they do not levy any pre-payment charges when the amount is paid by the borrowers from their own sources.

In general, own funds means funds generated through ‘own sources’ and not through borrowings by any lender. Prepayment of loan by a borrower can take place on account of (i) takeover of his / her loan by other lender, and (ii) out of their own sources. In the first case, the borrower often gets their existing loan refinanced by other lender, if the interest rate offered by other lending institution in the market was lower and attractive.

In terms of RBI guidelines, in the context of granting greater functional autonomy to banks, freedom has been given to scheduled commercial banks, including public sector banks, private sector banks and foreign banks, on all operational matters pertaining to banking transactions.

This information was given by the Minister of State for Finance Shri Namo Narain Meena in a written reply to a question raised in Rajya Sabha today.

Please tax us more !

One of the most extraordinary developments in recent weeks is the demand for higher taxes from rich Westerners.

Earlier this month, 16 business leaders and wealthy individuals in France signed a petition asking the French government to increase tax rates on people like them. One of the many suggestions was an exceptional tax equal to 3% of their income that would be imposed till the budget deficit in their country was reduced to 3% of the gross domestic product. “At a time when the public finances deficit and the prospect of a worsening state debt threaten the future of France and Europe, and when the government is asking everyone to show their solidarity, it seems necessary for us to contribute to this,” they wrote.


Earlier, billionaire investor Warren Buffett had argued in an op-ed published in The New York Times that it is time the US government took away more from the super rich. “My friends and I have been coddled long enough by a billionaire-friendly Congress. It’s time for our government to get serious about shared sacrifice,” Buffett argued. “While the poor and middle class fight for us in Afghanistan, and while most Americans struggle to make ends meet, we mega-rich continue to get our extraordinary tax breaks,” he wrote.

Buffett and the French petitioners have used terms such as solidarity and shared sacrifice that are usually part of the lexicon of the Left. Whether their call is a truly enlightened move or a cynical ploy to defend them against public ire at a time of great economic distress is unclear to me. But the calls have come from business people who have built their wealth in activities that have not faced popular anger. In short, they are not bankers or hedge fund managers.

Either way, it is worth speculating whether the great tide of tax cuts that swept over the globe over the past 25 years is about to recede. Most Western economies face a fiscal crisis, and have to maintain the complex balance between spending more right now to reignite growth and put in place policies that will help them put public finances in order in the future. The current austerity debates are focused on spending cuts. How soon before higher taxes are put on the table for consideration?

In India, the marginal tax rate—or the tax paid on the last rupee earned by an individual—had climbed to a ridiculous 97.5% during the high noon of Indira Gandhi’s tryst with socialism. Tax rates of income and wealth have fallen dramatically since then, creating stronger incentives for people to work harder and also declare their income. The tax code has also been cleaned up, with fewer tax slabs, exemptions and distortions. The new Direct Tax Code—especially the original version proposed by the finance ministry during the tenure of P. Chidambaram— will take this process of tax reform forward.

Lower taxes and a more transparent tax code are definitely a positive for the Indian economy at its current stage of development. But there are signs that income inequality has been growing in India, though more gradually than many critics of globalization allege. My personal view is that some increase in inequality is inevitable in an era of high growth—an empirical reality first noticed by US economist Simon Kuznets many years ago—and is not a significant problem as long as the channels of opportunity and social mobility are robust.

The more significant political issue is the rise of a new class of super rich at the very top of the pyramid, whose wealth has multiplied because of the boom in equity prices since 1991. India currently has short-term capital gains taxes on shares that are lower than income taxes, does not tax long-term capital gains and has no inheritance tax. Most tax experts I spoke to say that these are valid incentives for the creation of wealth.
However, I recently met one of the finest Indian economists in the new generation. I shall not name him since we had an informal chat. He argues that it is regressive that the middle class should pay relatively higher income taxes and earn negative real returns on their preferred mode of savings, the bank deposit. (Of course, the middle class has its little tax subsidy, through the statutory and public provident funds that pay tax-free interest rates that are higher than those available in the market or with banks.)

The Indian business class has no need to be apologetic about the wealth it has created and the jobs it has generated. But signs of growing concentration of income and wealth among our home-grown billionaires could eventually lead to a political backlash, especially if more corruption scandals come to light. The more enlightened parts of the business community may have to follow the steps of Buffet and the French plutocrats, and reach out to the rest of society in a gesture of goodwill.

-  by Niranjan Rajadhyaksha, executive editor of Mint.


(Courtesy : Livemint.com)

Are you one of those privileged, who builds this nation?

Only 2.77 percent of India's population pay income tax

New Delhi, Aug 31 (IANS)

Just 2.77 percent of India's 1.21 billion people pay personal income tax, official data showed.

“The number of effective tax payers as on March 31, 2011 was 3,35,79,831 (33.57 million),” Minister of State for Finance S.S. Palanimanickam said in a written reply to a question in the Rajya Sabha Tuesday. This is just 2.77 percent of over 121 crore or 1.21 billion population of the country, The amount of direct tax collection rose to Rs.446,070 crore in 2010-11 from Rs.378,063 crore in the previous year, the minister said.

(Courtesy: Deccan Herald)

Service tax coming on healthcare, rail tickets?

NEW DELHI: If the government has its way, you could soon be paying service tax on your hospital bill, rail tickets, several government services, capitation fee and hiring a marriage hall from the municipal agency.

A concept note floated by the finance ministry has proposed to exclude only a handful of services - education, funeral and farming activities from the tax net. The list of 27 segments that would be excluded from service tax also includes interest and dividend earned, religious services and betting and gambling.

In case of health, the finance ministry has given two options. One option is to exclude all services provided by clinical establishments with turnover under Rs 4 crore from the tax net. This means that apart from your medical bill at a large private hospital you will also have to pay service tax, which could be 10% of the total amount.

The second option is to keep hospitals, medical care, diagnostic and para-medical services out of the tax net. The only exception will be in case of health check-up and cosmetic or plastic surgery. After the last budget, the government had decided to defer a tax on most healthcare facilities in the wake of public protests led by hospital chains.

The concept note is the first attempt by the government to provide clarity on which services would be taxed and the ones that would be excluded. The move is part of the preparation being made for implementing a comprehensive Goods and Service Tax (GST) regime, which will shift the entire indirect tax levy to 16%. At present, the Centre levies 10% service tax but under the new dispensation the states will levy 8% tax, and the Union government will match it.

While releasing the concept note, the finance ministry said this is a preliminary exercice. "(The) negative list is formulated keeping in view a variety of considerations, for example, administrative, contractual obligations, difficulties to tax certain activities for want of ascertainable taxable value of each transaction or a number of socio-economic considerations as well as in the case of Indian constitutional limits," the paper said.

Along with the negative list the government has also sought to define 'service' for the first time. So, anything that is not classified as goods, money or immovable property will be treated as a service. The idea is to tax everything that is not on the negative list. Under GST, when the rates for taxing goods and services are the same, it would be much simpler to levy tax and also avoid disputes.

Over the years the government has been trying to bring more services under the tax net as this segment, including construction, accounts for 63% of India's economy. The services economy is estimated at nearly Rs 50 lakh crore, but service tax is expected to generate Rs 82,000 crore this fiscal - 8.8% of the budgeted tax receipts for 2011-12.


(Courtesy: Times of India)

TAXATION OF SERVICES BASED ON A NEGATIVE LIST OF SERVICES CONCEPT PAPER FOR PUBLIC DEBATE

In the Union Budget for 2011, the Finance Minister has promised that taxation of service will be made based on a small negative list of services. Thus the Govt has not come out with a Concept Paper for debate on the Negative List of taxation.

The negative list implies two things - (1) list of services which will not be subject to Service Tax and (2) All other services will be taxable.

Presently only those services are specifically mentioned as taxable are taxed and all other services are exempted. It is also called 'taxation by way of positive list'.

The proposed negative list contains 27 services.

The Five Questions

By this concept paper, Government  put forth 5 questions for public debate:

1. Should the country adopt a negative list? if so, what will be the proper timing - at the time of GST or earlier?
2. How to define 'Service' for the purpose of taxation?
3. What are the services to be placed in the negative list?
4. How comprehensive the negative list should be? What should be the treatment of important sectors like education, health care, Public services, Charitable & NGO, Infrastructure etc?
5. What are the likely revenue implications?

The positive list has the advantage of definitive-ness as the  number of services increases, this advantage will get reduced. More number of services in the list may lead to overlapping as well as unintended taxation, which will lead to unending litigation and compliance costs.

On the other hand, the negative list may keep some services outside the tax net leading to unintended exemptions, which will in turn lead to breakage of input tax chain, implying higher cost to tax payers and end users. Once the chain is broken, the tax credit before the broken link will not be available to the subsequent stages, whereby costs will be increased to that extent.

Moreover, reversal of cenvat credit on untaxed  supplies will add to confusion and complexity in the tax administration system. Such exclusions will distort the economic neutrality across same/similar services, or discourage outsourcing by incentivizing self-supplies. 

But the positive list has an advantage that it is already got an awareness and stability in the tax administration. 

Definition of Service

The definition put forth for public debate is an exhaustive as well as inclusive one. The Concept Paper defines service as:

“service” means anything which does not constitute supply of goods, money or immovable property- and includes-

A. right to use an immovable property;

B. construction of a complex, building, civil structure or a part thereof, including a complex or building intended for sale to a buyer, wholly or partly, except where the entire consideration is received after issuance of certificate of completion by a competent authority;

C. temporary transfer or permitting the use or enjoyment of any intellectual property right;

D. obligation to refrain from an act, or to tolerate an act or a situation, or to do an act;

E. service in relation to lease or hire of goods; and

F. right to enter any premises-

 but excludes a supply-

A. by an employee to an employer in the course of or in relation to the employment of the person;

B. by a constitutional authority under the Indian Constitution or a member of an Indian legislature or a local self-government in that capacity;

C. that amounts to manufacture of excisable goods or is chargeable as part of the value of goods to a duty in terms of the provisions of Central Excise Act, 1944;

The key words are "goods, money or immovable property". Any supply other than these three are covered under the term 'Service'.

Out of these, 'Goods' is defined under Sales of Goods Act, 'Immovable Property' is defined under General Clauses Act. “Money” is meant to capture transactions where Indian legal tender is exchanged from one form to another.

However, in the case of composite transactions like Works Contracts, Catering, hire purchase etc, the service part will be taxed.

Negative List

The Negative list is prepared based on certain considerations:

•  Administrative Considerations : like taxation of Government, sectors difficult to tax
• Under Contractual Obligations: like specified international bodies and diplomatic missions
• Welfare considerations:  vulnerable sections of the society, public health, basic education, public transport etc.
• Economic Considerations: transport for export of goods, agriculture, 
• Activities which are within the powers of the state: Betting, Gambling, Lottery etc.

Some of the thoughts of the Government are like follows:

1. There may be taxes on services provided by Government agencies exclusively. But in areas where private sector is competing with public sector, any exemption to Government will amount to discrimination and economic distortion.
2. Even though sale and purchase of shares and other securities on a principal to principal basis will be exempted, all services in connection therewith  like share broker service will be taxable.
3. Renting of personal dwelling will be exempted. But any such service in excess of a comparatively high threshold will be brought into tax net to bring in the opulent living into the tax net.
4. Regarding health services, the thinking is all basic and primary health care should be kept out the tax net. However, high end medical services by private enterprises will be taxed. Another though is to fix a reasonably high threshold and tax so that large entities and people with health insurance cover or other affluent sections of the society only will be taxed.
5. Similar arguments are there in respect of education also.

Revenue Impact

Presently 57% of the GDP is from Services. If we include construction also, it will increase to 63% which is equivalent to Rs. 50 Lakh Crores. However we do not have statistical data on the contribution of different service sectors  into the GDP. 

The Government estimates that, considering the negative list of exclusions and the informal sector comprising of around 60% of the total service sector, the potential for effective taxation of services may be confined to about 20-25% of the service sector contribution. This is still a sizable number and will add significant numbers to the revenue though may not sound astounding as some sections believe it to be.

The Negative List of Services

Given below is the proposed negative list of services:

Sector	S. No.	Negative List	Remarks
1. By specified persons	1.	Notified services provided by: a. Government* and Judiciary; b. RBI; and c. government regulatory bodies	List of these services or the principle for exclusions will be worked out based on the outcome of the debate
	2.	Services provided by inpiduals to Government in relation to their representation on any council, commission or similar body set up by the Government
	3.	Service by UN, international bodies, diplomatic missions under diplomatic and consular arrangements as per laid down conditions (details to be specified)	Services provided to such entities to remain exempt as at present.
2. Social welfare and public utilities	4.	Services provided by organizations registered as non-profit entities in matters relating to public and social welfare activities-excluding education and health (covered separately)-including charitable fund-raising events, sponsorships to charitable events and voluntary donations to charity	Public and social welfare activities will be suitably defined and may be restricted to specified fields only
	5.	Funeral, burial, crematorium and mortuary services
3.Agriculture & animal husbandry	6.	Services directly used for growing, cultivation, harvesting of the agricultural produce, horticulture , animal husbandry, forestry, dairy, poultry farming and pisciculture (including renting of vacant land exclusively or predominantly for any such purpose)	Certain support services in relation to agriculture and allied activities may be separately exempted
4. Financial Sector	7.	Sale, purchase or acquisition of securities and debts on principal-to-principal basis	Acquisition of shares in lieu of services will be liable to tax
	8.	Interest
	9.	pidend on investments
	10	Inter-bank sale and purchase of foreign currency
5.Transport	11	Transport of passengers by: a) public transport buses on a point-to-point basis (except tourist buses) and stage-carriage basis; b) public transport in ship or vessel of less than 15 net tonnage on a point-to-point basis; d) by metered taxis or three-wheeler auto rickshaw plying within the precincts of a city
	12	Transport of goods to a destination outside India by any means of transport
	13	Supply of goods carriage to a person engaged in the business of transportation of goods
6. Construc-tion & Real Estate	14	Construction, works-contract, repair, alteration, renovation or restoration of: a) roads, airports, railways, transport terminals, bridges, tunnels, dams, canals, irrigation and flood control waterworks including watershed development and water-bodies, water treatment plants and water supply pipelines; b) buildings owned by Government, other than meant predominantly for industrial or commercial use, including government hospitals and educational institutions c) residential building comprising of a single dwelling unit; d) homeless shelter, orphanage, old-age home, rehabilitation & de-addiction centre, child day-care home or place of worship
	15	Renting of personal dwelling for residential use of a person below a threshold (to be finalized after debate) and when used otherwise as a hotel, inn, guest house, club or campsite or similar accommodation
7. Education	16	Pre-school, school and recognized education** and vocational training recognized by NCVT except as capitation fee, donations or similar charges in relation to admission
8. Health	17	Option 1: Services provided by a clinical establishment with a turnover below Rs. 4 crore in the previous year Option 2: Hospital, medical care, diagnostic, para-medical services except in relation to preventive health check-up within the precincts of a clinical establishment, cosmetic or plastic surgery	Services to specified sections and by public hospitals may be exempted under option 1.
9. Others	18	Copyright services of original literary, dramatic, musical and artistic works
	19	Services provided by independent journalists, PTI & UNI for providing news
	20	Services provided by sportspersons, as a player, coach or referee/umpire and performing artists in that capacity (excluding as brand ambassadors)
	21	Religious services provided by any person.
	22	Services provided by a political party recognized by Election Commission of India
	23	Services provided by a trade union to its members
	24	Representational services provided by an advocate to inpiduals
	25	National or international prize/award in recognition of achievement in the field of art, literature, science, sport, economics or public life
	26	Tolls except services in relation to collection of tolls
	27	Betting and gambling except services in relation to promoting, marketing or organizing games of chance, including lottery services

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