Confusion reigns in trade and industry

Hope of deferral gave way to confusion for many in trade and industry, as the Union government decided to keep its date with the new service tax regime, based on the negative list, on July 1.

Experts caution that there is likely to be a cascading impact on inflation.

“It could take some time to sink in… earlier we were in a system of defined services, whereas under the new [regime] have a broad definition of services. The saving grace is that some services are excluded and some exempted,” said K. Vaitheeswaran, advocate and tax expert.

Underscoring the need for greater clarity, he said everything would be part of the discovery process as service-providers realised that the levy applied to them too. Ignorance could also lead to a situation in which customers were made to pay for services that did not attract the levy, he said.

“There will be too many changes in … legislation. Seventeen notifications were issued on June 20… take time to understand and digest them,” he said. The services that will be taxed include those of carpenters, plumbers, artists and technicians in the film industry and astrologers. The Rs. 10-lakh exemption limit might help small service-providers.

Arguing that the whole face of service tax would change from Sunday, G. Natarajan, an advocate in indirect taxation, said: “The simple definition of service as any activity carried out by a person to another consideration is so sweeping. It may encompass even unimaginable transactions within the ambit of the levy.”

Among the activities that would attract the levy were “services provided by builders of apartments where there are more than one flat [now the service tax is applicable only where there are more than 12 flats in a complex], construction of schools, colleges, hospitals etc., for any person, including charitable trusts and except government.”

Trade and industry are not prepared and the new regime should have been implemented more carefully, said S. Raghavan, secretary, Southern India Chamber of Commerce and Industry.

“We were hoping that it would be deferred… had even represented to the government,” said K. Saraswathi, secretary-general of the Madras Chamber of Commerce & Industry.