New Delhi: India’s finance ministry will come out with a detailed classification of taxable services aimed at clearing a mounting backlog of litigation arising from the absence of a descriptive definition of service.
The new tax structure, which is also expected to ease filing by companies, may be ready in the next six months, said an official of the department of revenue who asked not to be identified because he is not authorized to speak to the media.
To streamline the process of service tax collections, the department plans to describe categories in 106 taxable services, covering companies across segments such as construction, mining and information technology.
“We are working on a proposal to tariff the transactions under each service category,” said the official.
“To come out with a negative list of services is not a good idea, as this can complicate things further,”the official added.
According to some private estimates, at least half of all indirect tax complaints in India are related to service tax.
“There is a need for clarity with 106 services being there and with some of them overlapping,” said R. Muralidharan, executive director of auditor and consultant PricewaterhouseCoopers.
“The number of cases pending are increasing in service tax matters related to which category the service falls into and the import and export of services,” Muralidharan said.
The Union government’s service tax collections during April-October, the last months for which this data is available, was Rs34,958 crore, a 29.61% jump from Rs26,971 crore in the corresponding period a year ago.
During April-November, excise duty revenues went down to Rs73,878 crore from Rs75,013 crore a year ago.
Customs duty revenues too saw a decline in November with collections at Rs8,931 crore compared with Rs9,005 crore in the corresponding period a year ago.
Service tax litigation are a big problem in India, says Pratik Jain, executive director with auditor and consultant KPMG India.
“Detailed classification should certainly help as there are issues on which classification they should go into, issues relating to exemptions, as they (exemptions) are limiting to certain classifications. There are many disputes pending relating to nature of services. Today, most of the software companies are paying both service and value-added tax because there is no clarity whether the transaction should be classified as goods or a service,” Jain said.