Finance Minister Pranab Mukherjee Gives Nod For Discussion on GST.

NEW DELHI: Finance minister Pranab Mukherjee has given his nod to begin discussions on the way services are to be taxed, in sync with the proposed goods and services tax (GST).

Despite being busy with the Lokpal bill, he approved a white paper on taxation of services that will be put out for public comments soon. The paper will define service, its delivery for taxation purposes and also list services not to be taxed, or shifted to a globally accepted negative list of taxable services.

"The white paper will outline negative list approach in service tax," a finance ministry official told ET.

Though the idea is to launch the negative list regime as part of the GST, if there is any further delay in GST the government may launch the new regime this budget itself.

The 'negative list' approach, followed globally, allows for exemption of some essential services from tax while the rest are taxed as opposed to 'positive list' approach that lists taxable services. The negative list approach helps end evasion of tax.

SD Majumdar, chairman of Central Board of Excise and Customs confirmed the finance minister had approved the paper.

"The concept paper will give some sense of the negative list," he said.

It will mention sectors and the approach to keep some of the services out of tax net. Services expected to be kept out of tax net would include essential services, education and funeral services.

The negative list approach was outlined in the draft discussion paper on the goods and services tax put out by the empowered committee of state finance ministers.

Services account for nearly 60% of the country's total output but contribute only about 10% to the total tax kitty, or about half of excise duty.

India began taxing services only in 1994, going with the positive list approach by taxing only a few select services. The approach since has been one of slow and steady expansion of the tax net.

"Service tax has matured and the sector now contributes more than half to country's GDP. So, barring a few essential services there is no reason why all services should not be taxed," the official said.

FM had already begun the ground work for this shift in the budget. The government proposed taxation of all services provided at ports and airports and also put in place point of taxation system in service tax harmonising it with goods taxation.

Source : economictimes.indiatimes.com