Train travel, passport fee may come under service tax net

Government considers a 'negative list' model to tax services, which will boost its tax revenues significantly

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Travel by train, passport fee may come under tax net as the government considers a 'negative list' model to tax services, which will boost its tax revenues significantly as per an ET report.

Most countries follow the negative list model-where a list of exempted services is specified and every other service is taxable-to tax services, but India follows a positive list model, or naming the services that are taxed. The Central Board of Excise and Customs has now proposed switching over to the negative list model in a concept paper that invites comments from all stakeholders.

A decision on adoption of this model and composition of the list will be taken after taking into account views of all stakeholders, a finance ministry official said. "This paper is being put out only to elicit views of public on the concept and what services should be kept out of service tax net," he said. The concept paper said, "Positive list has the advantage of definitiveness, which is an essential pre-requisite for a good taxation law.

However, this very advantage starts getting eroded as the number of services increases." A negative list-based service tax represents a fundamental change in India's approach to taxation in services. And it can lead to a significant jump in tax revenues as many more services come under tax net. According to the concept paper, only 16% of the service sector, which contributes almost 63% of the gross domestic product, is taxed at present. About 20-25% of the service sector contribution to the GDP may be taxed under the negative list regime, it said.

The exemption list includes select government services, services provided by non-profit organisations, interest and dividend on investments, equity sale and purchase, public transport by buses, taxis and autos, primary education, religious services and services provided by political parties. The list is only an indicative one for an extensive debate on the subject, the official said.

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