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Budget 2012: Proposals relating to Service Tax

Draft. Budget 2012: Proposals relating to Service Tax. TRU, CBEC, Ministry of Finance. March 23, 2012. TRU. 4. CX & ST Harmonization. 5. Reverse charge. 3. POS Rules. Budget 2012. 2. Cenvat reform. GST. 1. Negative List . The budget summary. Executive Summary. TRU.

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Budget 2012: Proposals relating to Service Tax

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  1. Draft Budget 2012: Proposals relating to Service Tax TRU, CBEC, Ministry of Finance March 23, 2012

  2. TRU 4. CX & ST Harmonization 5. Reverse charge 3. POS Rules Budget 2012 2. Cenvat reform GST 1. Negative List The budget summary Executive Summary

  3. TRU The negative list: Concept (1/4) Activity for consideration I: Immovable property M: Money A: Actionable claim G: Goods E: Employee Not mere IMAGE Executive Summary

  4. TRU Negative list: Highlights (2/4) Category Highlights 1 Constitution or international obligations • List II e.g. tolls, betting, gambling or international convention e.g. services by diplomatic missions • Not services in relation thereto 2 Taxed as goods • Manufacture • Trading of goods 3 Lasting entries • Education , agriculture, renting of residential dwellings or funeral • Margin-based financial services Executive Summary

  5. TRU Effect on major sectors (3/4) Taxability Changes Low High • Passenger railway by higher classes taxed with ITC; inland waterways excluded; • Repairs etc. of airports/ports/railways taxed; rate 40/60%; ITCs made available • Renting to govt., > 90 days in hotels • Largely status quo, NSDC exempted; greater clarity provided: bundled services • Largely status quo; unrecognized health care taxed • To business entities reverse charged; regulators/autonomous bodies taxed • Interest on loans now exempt; reversals applicable; services to govt. taxed; • Mainly filling up of gaps Executive Summary

  6. TRU Other relevant aspects (4/4) • Goods or property v services: 2. Services vs services Rules of interpretation Dominant nature test Declared services • Deemed sale of goods in constitution; service portion specified; • To remove ambiguities: judicially held to be services; • 8/9 already being taxed; 9th not being taxed by states • Normally uniform rate • When differential treatment: • Specific preferred over general • Bundled services: • Natural: essential character • Unnatural: highest liability • Ordinarily: Dominant nature or pith and substance test; • Rate same or higher • (Notification 12/2003 to be rescinded) Executive Summary

  7. TRU Cenvat reform Scientific allocation Mitigate Cascading Facilitation • ISD:to distribute credits scientifically: • Exclusive: only to that • More: proportionate to user turnover • Refunds: No question asked, if entitled to avail credit; ratio of exports to total turnover • Avail on challan: for reverse charged services • Allow credits: • Goods and services for legitimate business use • ITC to abated services: catering, restaurants, hotel stay, life insurance, construction Principle of neutrality: no cost to business Executive Summary 7 7

  8. TRU Place Of Supply Rules, 2012 Objectives The rules Later rule to prevail • Main rule:B2B supplies: Location of receiver • Other Rules:B2C supplies: • Place of actual performance, or • Location of property/event/performance/ embarkation of journey • Location of supplier, or • Internationally aligned with a fair bit of originality to retain B2C revenue in India Cross border Within • Cross border taxation • J&K supplies • Jurisdiction to tax • SEZ • GST rollout Executive Summary

  9. TRU Harmonization and compliance 1.5 page common registration;1 page common return: EST, Appellate provisions Harmonisation & simplification Dispute settlement Settlement commission Revision Application Authority Enforcement Comprehensive special audit Evasion an offence for prosecution now Executive Summary

  10. TRU New services added: Service to business entities by govt/ individual advocates/arbitrators 1 J&K Supplies: Covered by POS Rules; reverse charged if provider in J&K 2 Reverse charge new scheme: Tax payable to the extent stated on 3 specified services 3 Reverse charge (1/2)

  11. TRU Reverse charge: new scheme (2/2) Liability to pay • Service receiver: • Portion payable: • Transport: 40% • Manpower: 75% • Construction: 50% • Independent liability • Service provider: • Portion specified: • Transport: 60%; • Manpower : 25% • Construction: 50% • Avail ITC • Refund if necessary

  12. TRU GST ? Unified GST 2011-13 Towards Central GST 2005 State VAT 2004 CENVAT

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