Ahead of GST, govt moots service tax at invoice level

B Y SURABHI AGARWAL



Clearing the decks for the proposed goods and services tax (GST), the Central Board of Customs and Excise (CBEC) has proposed altering the point of collecting service tax.
CBEC comes under the department of revenue in the finance ministry. Its draft rules, put up for public debate till 1 September, propose that service tax should be payable at the point of issuing the invoice rather than after the payment is made, which is the case now.

Pratik Jain, executive director of consultancy firm KPMG, said the proposed point is industry-friendly and a positive step, considering the government's push to impose GST by 1 April. “Through these new rules, the government is testing the ground for GST,“ Jain said.

Harishanker Subramaniam, tax partner at consultancy Ernst and Young, said the draft rules are based on the normal concept of accrual rather than payment.

“Central excise and the value-added tax follow this approach and getting service tax on the same model is in line with the preparation with GST, as all taxes will be subsumed into one when the GST is imposed,“ he said.

The change in policy, when it happens, could have an impact on firms in some sectors, especially those in telecom as these are heavy payers of service tax. There could be some cash flow issues for companies as they would have to pay tax when they issue an invoice against the practice of paying tax only after payment for the service is made. The draft rules also aim to provide clarity on how service tax would be levied and collected if there is a change in the rate of service tax or the tax is imposed on new services. CBEC has issued several clarifications for many instances that could arise in case of changes in the rate of service tax or additions or deletions to the list of taxable services.

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