India Tax Payer - Forum

Posted: 14-12-2011

Comments on TAXATION OF SERVICES BASED ON A NEGATIVE LIST OF SERVICES CONCEPT PAPER FOR PUBLIC DEBATE

At the outset, we would like to express our pleasure and thanks for giving us, the Tax Payers of this country, an opportunity to be heard.

1. Yes, we also concur and hope that the Negative List would certainly do well to the methodology of taxing when compared to the positive one.

2. Definition of Services: It is rather sad that even now we keep thinking of isolating services from goods. As a matter of fact, it would do wonders to the definition by looking at the entire economic contribution as a whole for the purpose of taxation. Services are also sold and purchased as much as goods are. Therefore, it is better to define Services and Goods together as one single entity instead of trying to isolate them and failing in it. As Marxian theory stated long time ago, ‘Value of the good is in the service’ added to it. It is the human service that adds value to every product / good produced. Even the modern day Marginal Utility theories have concluded that there is a noticeable service which raises the value of a good even when there is no noticeable addition to the goods in certain products such as real estate. To say that a good has gathered value by itself without the addition of service to it is not correct. In most countries, VAT itself is a ‘Value addition Tax’ and therefore, a tax on services as well. In our own sobriquet we have decided that VAT shall not include service which is a misunderstanding of how value is added to a good!

3. Therefore, it is premature to introduce this negative list with one more definition of service which will only add to the confusion already in place. Instead, it would be appropriate to merge the definition of services and goods and make them a rule when the GST is introduced.

4. The ideal statement for the purpose of taxation, taking into consideration the aforesaid point, should be: “any sale is taxable” “Sale” is defined as “any commercial transaction involving two distinct parties whether there is a payment or not”. Sale can be sale of goods or services. More thought can go into this definition to make it universal and covering all types of sale. And one single negative list can be created for both services and goods. Isolating goods and services is not a wise idea since they are not separable.

5. There is no need to define ‘goods’ nor ‘services’. What need to be defined are a ‘transaction’ and a ‘sale’. Please look at it from an all-inclusive perception which would make things much easier. A hurried release of redefined Service Tax Rules is not going to help anyone. Instead, a workable and a futuristic definition of Taxation would be more in place and might become a stamp to be followed by rest of the world as well.

6. From the exclusions list provided, we feel that the following should not be excluded:

a. Employees: Is employment not a service? It is a service rendered by individuals. Every person is a professional service provider. How do the services differ whether a person provides the service as an employee or as a consultant taking regular retainer? Now that most companies and the government work on a CTC basis, the differences are made zero. Ideally, the government should think of subsuming income tax under this as well. If the employees are also asked to pay service tax, there is no reason why there should be two tax collection points such as income tax which again is nothing but earning that arises out of services rendered by a person / entity. Whatever the government wants to earn out of income tax, they can charge under the service tax bracket itself. Even if we choose not to do this today, eventually it would happen since world over subsuming direct taxes under consumption taxes is gaining acceptance. It is a Green concept to encourage consumption taxes which would deter consumption.

7. We look forward to triggering a thought process that could benefit the community at large. We hope that this piece of note would have provided that trigger. If it results in some modified version that would make life easier, this note would have done its job.