Sub-contractors in construction projects will now have to pay service tax. They will add to the various categories of small entities, which were so far not required to register themselves as service tax payers.
While their taxable amount will not go up, they will become responsible for maintaining individual tax accounts with the revenue departments. Until now, only the main contractors had to pay taxes.
The two new master circulars issued by the Central Board of Excise and Customs (CBEC) on Thursday has rung in these changes. The circulars bring in a degree of consistency and clarity in the service tax laws.
The department was so far administering the government's fastest growing tax through more than 100-odd circulars. There is not service tax act, unlike the Customs Act of 1952 and the Excise Act of 1944.
The provision is significant considering that service tax evasion has been high in the last three years. In 2006-07, the department has estimated a revenue loss of Rs 940.78 crore from 4,342 cases.
Tax experts said the move will not escalate the cost of projects but may result in a cash flow issue for businesses. There could also be some hidden devils as the tax assesses read the implications of the withdrawl of the individual circulars.
Anita Rastogi, principal consultant Price Waterhouse Coopers said, "This is in line with the system of value added tax and goods and service tax." Sujit Ghosh, executive director BMR& Associates said, "It will ensure that people pay their taxes at the sub contractor level too." Since the two circulars do not cover the circulars from Budget 2007-08, there is scope for changes, they said.
For the purpose of easy reference, the CBEC has divided all taxable services into four categories- services provided from outside India and received in India, export of services, valuation of taxable services, miscellaneous purposes- and provided a three digit code for each of them.
The CBEC has now made it mandatory for every company —seeking tax exemption—to register immediately after its annual turnover or sales cross Rs 7 lakh. Earlier, service providers could avail of service tax exemptions till they hit the Rs 8 lakh annual turnover figure.
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