A negative list of taxation services, touted as “sound economics and prudent fiscal management” in the Budget speech, may not add significantly to the government’s revenue in 2012-13, thanks to a huge exemption list of 34 categories of services, besides the 17 services proposed in the negative list. Experts say most services with good revenue potential are already taxed, and meeting this target would not be easy for the government.
S K Goel, chairman, Central Board of Excise and Customs (CBEC), said, “The negative list would not give us substantial revenue because the exemption list is large. Also, it would take three to four months to come into effect. We are going on this path very slowly and carefully.” In due course, some exemptions could be withdrawn to widen the tax net, he added.
The finance ministry has set an ambitious target of 30 per cent growth in service tax revenue in 2012-13, compared to the revised estimate of Rs 95,000 crore for the current financial year.
“If the target is achieved, it will be an achievement. They have continued to give exemptions even after bringing in the negative list, and this would continue to increase,” said Sukumar Mukhopadhyay, former member of CBEC. He added that big services were already being taxed.
T R Rustagi, former joint secretary in CBEC’s tax research unit, said services with better revenue potential were already taxed by the Centre. “The important services, in terms of revenue contribution, were already brought in the tax net. They kept the target very high.”
Despite the huge exemption list, the finance ministry expected a revenue gain of about Rs 9,000 crore from the negative list in 2012-13. However, since the list is unlikely to become operational before July 2013, the government would get only about Rs 5,000 crore, and this, too, would be offset by the increase in refunds and change-in-points of taxation rules.
The Budget proposals on service tax are expected to result in a net revenue gain of Rs 18,660 crore. The increase is primarily on account of an increase of two percentage points in the service tax rate.
However, S Madhavan, executive director, PWC, said this was a fair estimation. “The negative list and the two percentage point rise in the service tax rate would contribute to growth,” he said.
Currently, 119 services are taxed by the government, while 88 services are exempted. While services comprise 56 per cent of India’s gross domestic product (at factor cost and current prices), service tax collections account for less than 25 per cent of the government’s total indirect collections.
