Negative list to reduce litigation: S K Goel

Interview with Chairman, Central Board of Excise & Customs

Vrishti Beniwal / Mar 20, 2012, 01:02 IST

source: Business Standard

With the introduction of a negative list for taxation of services in the Budget, the Union government has taken a giant step towards the goods and services tax (GST). While the introduction of the GST is still sometime away, the negative-list approach is expected to boost the Centre’s revenues. Central Board of Excise & Customs Chairman S K Goel tells Vrishti Beniwal that the first year won’t see any revenue gain, but — contrary to expectations — the number of litigations will go down. Edited excerpts:
States have complained that you have not taken into account their suggestions while formulating the negative list for taxation of services.
There could be some apprehensions on the part of the states. We have taken all possible suggestions, but if there are some services that are required to be taxed, they have been kept out of the negative list. We have made sure that we don’t go beyond our Constitutional limits. If they have any doubts, we can clarify that. It’s not that we will tax all 35 items suggested by the states for consideration under the negative list. It may be a matter of interpretation. For instance, luxury tax is a state subject. Now somebody might say eating in a restaurant is a luxury, but for the other person it could be a normal activity.

What about the services that are taxed by the states and will now be taxed by the Centre, too?
We are not charging tax on goods; it is levied only on the service part. For example, when food is served in a restaurant, there is no service tax on the food portion, but the service part will be taxed. Also, the tax is not on full value of the food. We also give abatement, which could be 40 per cent, 50 per cent or 60 per cent (on the service tax rate of 12 per cent).
When will the negative list come into force?
It will be introduced after the Finance Bill is enacted. The date will be notified.
By doing that, you would be getting into an unknown territory. Wouldn’t that lead to too much litigation? In the recent past, we have seen so many disputes on taxation of services.
On the contrary, the negative list will reduce litigation. Litigation takes place when, for example, one doesn’t have clarity on whether the service provider is a dry-cleaner or a launderer. Now you can say I’m not a dry-cleaner, I’m just washing clothes. So those issues will not be there. Also, other than the 17 services in the negative list, we are giving a lot of exemptions. We will also be issuing a guidance paper, in which you just answer few simples questions in ‘yes’ or ‘no’ to know whether you are taxable.
Earlier you had projected 20-25 per cent increase in the service tax revenue with the introduction of the negative list. Out of the total revenue of Rs 18,660 crore budgeted from service tax next year, how much is due to a shift to negative list approach?
The negative list will not give us very substantial revenue, because the exemption list is large. Whatever gain on revenue target you see for the next year is because of the 2 per cent increase in service tax rate. We are going on this path very slowly and carefully. Over a period of time, some of the exemptions can be withdrawn. For the full year, we would have got about Rs 9,000 crore from the negative list, but since it will become operational after three to four months, we will get about Rs 5,000 crore. This will get neutralised because of the increase in refunds and change in point of taxation rules.
Is there an estimate about how many services will become taxable when the negative list is introduced?
It is not a question of the number of services. Anything which is a service will be taxed. There are situations when there are a bundle of services. For example, if you are staying in a hotel, in addition to providing the room, they are providing you facilities like laundry, ironing clothes, telephone call in the room and many other services. Currently, we can’t charge tax on such services because the definition of the service limits us. Now all definitional issues have been addressed.
The exemption provided for service tax on rail freight has been extended several times. Now that you have proposed to keep it outside the negative list, is there a possibility of another extension?
As of now, the exemption is till June 30. Let’s see. We have to work out an arrangement. I hope we will be able to collect the tax from July.
Excise duty has been raised to 12 per cent, while VAT (value-added tax) is at 12.5 per cent in states. This takes the total levy above 24 per cent, while in THE GST you wanted to tax goods at 16 per cent.
As of now, we want to align service tax and central excise duty. If they are going to be merged into GST, they should be on the same line. Even other provisions are being aligned so that service tax assesses get used to the environment they will encounter once the GST is introduced. The GST Network will also be implemented from August 2012. So, service tax assesses will get prepared for it.