“The imposition of service tax on government services is going to increase cascading impact of taxation front and also given that the entire concept is so vague, this is going to generate a large number of disputes,” EY Partner Uday Pimprikar told PTI.
Budget 2017 widened the service tax net to include services that government renders to the public and corporates, such as issuing passports, driving licences, birth and death certificates, among others. But following representations from many stakeholders, the government exempted individuals from the tax.
The new service tax structure came into force from April 1.
“The timing for seeking to impose tax on government services may not necessarily be appropriate. There are many areas of the economy like trading which are not entitled to claim credit. So, this tax itself will unnecessarily accentuate cascading impact on the economy,” he said.
According to Pimprikar, in most countries where GST is in force, such a tax on government services is not imposed.
Even in economies like New Zealand where such service tax has been levied, the government ensures that there is no cascading impact because they have got an all-pervasive GST regime and the tax that is charged is available as a credit to be set-off. And in case the credits are not set-off, they grant refunds, he pointed out.
As per a clarification issued by the government on April 13, any service provided by the government or a local authority to a business entity has been made taxable with from April 1.
Prior to this, only support services provided by government or local authorities to business entities were taxable.
The government also clarified that services like issuance of passports, visas, driving licences, birth or death certificates to individuals have been exempted and for business entities the exemption is only for birth/death certificates.
“Birth or death is for individuals. Government is not clear on what they have taxed and what the exemptions are,” Assocham Co-chairman, National Council on Indirect Taxes, J K Mittal said.