Education, healthcare and pilgrimages will continue to be out of the service tax net under the Goods and Services Tax (GST) regime as the Centre wants to avoid any shock in the first year of the rollout by bringing in new services.
Besides making a strong case to the GST Council for not including services that are out of tax net currently, the Centre will also pitch for keeping concessional rate for services like transport at the current level, Revenue Secretary Hasmukh Adhia told PTI in an interview.
The GST Council, headed by Finance Minister Arun Jaitley and comprising representatives of all states, is scheduled to meet in Srinagar on May 18-19 to decide on rates various good and services will be charged in the new indirect tax regime that is being targeted for rollout from July 1.
Adhia said the endeavour would be to maintain the current tax incidence on a commodity or service at the same level in the new GST regime.
GST will subsume central levies like excise duty on manufactured products and service tax on rendering of services as well as state VAT on sale, to make for a national sales tax that will be levied at the time of consumption of a product or service.
Adhia said any review for inclusion of a service or change in rate could be done in the second or third year of the implementation based on revenue realisation.
urrently, there are 17 items in negative list of services on which service tax is not levied. Additionally, there are 60 services, like religious pilgrimage, healthcare, education, skill development, journalistic activities which are exempt from service tax.
Rajat Mohan, Director at tax consultant Nangia & Co, said, “It was imperative that the government should continue exemptions on the current list of services which are tax neutral under the service tax regime.” “I am ecstatic that there would be no levy of GST on services rendered by the government, Reserve Bank of India, public conveniences, educational institution, services relating to agriculture, transmission or distribution of electricity, renting of residential dwelling for use as a residence, burial, healthcare, specified schemes of general insurance etc,” Mohan said.
Mohan, however, felt that this might lead to cascading effect of taxes, but by maintaining the status quo government has ensured that neither the consumer nor the small and medium-sized companies are not in a state of shock.
Asked if these services would be kept exempt from GST, Adhia said: “We presume so… We will recommend to the GST Council that whatever is in the exemption list they should continue in the first year.”
He said the main service tax rate will be standard rate of 18 percent. “But there may be items of services where abatement (concessional rate) is given for valid reasons. So those items, because there will be no provision for abatements (in GST), we will have to fit them in the rates closed to the present incidence,” he said.
The GST Council has approved a four-rate tax structure of 5, 12, 18 and 28 percent.
Adhia said transport sector, for example, currently gets abatement of 60 percent and only 40 percent of the present service tax rate of 15 percent is being collected. And so, the tax in the GST will be fixed in the closest bracket of 5 percent, he added.
Asked if rates for certain services will go up because the current tax rate is 15 percent and the nearest bracket that would not upset the revenue collections is 18 percent, he said, “some services may become a little more expensive.” The exact ones that become expensive or cheaper will be decided by the GST Council, he said.
On the issue of crude oil, petrol, diesel, aviation turbine fuel (ATF) and natural gas being kept out of GST net for the time being by continuing with existing taxes of excise and VAT, Adhia said the GST Council wanted to give states some comfort on revenue collection. “For them it is some kind of a risk insurer. That 30 percent income is already assured. Now 70 per cent (of products and services) they are putting it into the common kitty,” he said.
States, he said, want to wait and see how much revenue is generated in the GST regime.
“So, after a year or two if they find that the buoyancy (in tax revenues) is good, they could very well like to bring it (petroleum products) in GST,” Adhia added.