We started with three services in 1994 when Service Tax was imposed for the first time. As of today, there are 97 services under the net of services tax and every year they keep on increasing. Service tax is one of the major sources of Indirect tax for government and since inception, every year when the budget is presented, the net is widened to bring in new services and scope of service tax is extended to capture exempted service. If we keep on going at this rate, the list of services may run into thousands of pages and it would be better to prepare a list of what is out of net than what is in. A negative list for service tax may sound a naïve idea and may not be appreciated by tax payers but there is a case for it if we are determined to make our tax system better and more efficient.

I had said in my article before and I reiterate that we would be better off with a negative list of service tax than having a list of services which comes under the net of service tax. I hope Finance minister would be happy to give shape to this idea because of the following reason –

•This will definitely increase the revenue for the government and would make indirect tax collection more robust.
•Secondly, one of the important characteristic of a good tax system is its simplicity and transparency. With a negative list, companies and organization would not be required to break their head over what is in and what is out? They would also be saved of professional fees paid to service tax experts in claiming exemption from the department.
•As almost every service from travelling, education, refreshment centers to medical centers are brought under Service Tax there is an urgent need for a negative list to make the structure simpler. This will help the common man in clearly figuring out what is in the net and out of the net.
•For services such as NGO, Charitable organization and so on, the department can prescribe a negative list and an exemption list to make it more effective.

I know, that tax payers are against my views but my point is not to create an extra burden for them but it is only towards making the system more friendly and simple. I am not for increasing the service tax rate but since we are increasing the service tax net year on year it makes great sense to come out with a negative list. This will wipe out all ambiguities from the system regarding service tax and services like Charity, Defense, NGO and trust which really deserve to be exempted should be accordingly included in negative list. Might be we can decrease the rates, to set off the effect. But again decreasing the rates is out of question as we are moving towards GST which takes the rate to 16% by 2010. All said and done, a negative list for Service Tax is a good idea taking into consideration the fact that number of services in the service tax net is increasing every year.

The author is a Chartered Accountant working with TATA group and the views expressed are personal.

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