Sucheta Dalal :When you have butter why seek ghee?
Sucheta Dalal

Click here for FREE MEMBERSHIP to Moneylife Foundation which entitles you to:
• Access to information on investment issues

• Invitations to attend free workshops on financial literacy
• Grievance redressal

 

MoneyLife
You are here: Home » What's New » When you have butter, why seek ghee?
                       Previous           Next

When you have butter, why seek ghee?  

March 5, 2010

There is an ancient Tamil saying that a person holding butter in his hand goes looking out for ghee. It means that a person should look at what he has in hand before searching for other solutions.

 

The Budget deficit is at an uncomfortable level, and the finance minister should be looking for solutions. The Central deficit is over 6.5% and the combined deficit of the States and Centre is over 12%.  New demands for subsidies are cropping up all the time.

 

Clearly, the finance minister will have to look at various options to increase revenues.  

 

The first step to be taken is to examine the solutions at hand carefully.

 

Let’s look at the issue of service tax, which is now being levied on a large number of services. Though a strong case can be made to increase the ambit of service tax so that it includes a number of services, a number of anomalies exist in the current system.

 

For example, under legal consultancy services, services provided by individuals are exempted from service tax. But if corporate legal entities are being taxed, why are individuals who provide the same services outside the tax net?

 

In the case of barbers and beauticians, individuals are taxed. Again, in the case of legal services, why are individuals excluded?

 

Another glaring anomaly is with regard to the medical profession, which is wholly excluded. It is common knowledge that lawyers and doctors are among the highest earners in India. If the services of hair-dressers and beauty parlours are taxed, it would indeed be appropriate if lawyers and doctors earning above the exemption limit of Rs10 lakh are also taxed.

 

If the tax net is expanded in this fashion, it will fetch an additional income of about Rs10,000 crore for the government and help in reducing the fiscal deficit.

 

Efforts have been made to justify the exemption for doctors on the grounds that they render services to the poor. Even if this argument is accepted, there is a strong case for applying an exemption limit of Rs10 lakh for medical professionals.

Only the doctors working for five-star hospitals and private clinics, earning above Rs10 lakh should be taxed.

 

Let’s shift our focus to the legal profession. The reason given for not taxing lawyers is not tenable. To say that they are serving the court is specious reasoning. Lawyers are not being paid by the court or at rates fixed by the court.

 

The cases mentioned above are clear opportunities for the finance minister to raise more revenues.

 

Keeping the above factors in mind, let’s examine the various categories on which the current burden of service tax falls:

 

Cosmetic and plastic surgery services

 

These include services provided or to be provided to any person, by any other person, in relation to cosmetic surgery or plastic surgery, but does not include any surgery undertaken to restore or reconstruct anatomy or functions of body affected due to congenital defects, developmental abnormalities, degenerative diseases, injury or trauma.

 

Company Secretaries

 

These include services provided or to be provided to any person by a practicing Company Secretary to a client in his professional capacity in any manner.

 

However, the services provided by a Company Secretary representing a client for any proceedings initialled by issue of a notice, before any statutory authority, are fully exempt from tax.

 

Clubs or associations


These include services provided or to be provided to its members by any club or association in relation to provision of services, facilities or advantages either for a subscription or any other amount.


Beauty parlours


Services provided or to be provided to any person by a beauty parlour to a customer in relation to beauty treatment—this includes
hair cutting, hair dyeing, hair dressing, face and beauty treatment, cosmetic treatment, manicure, pedicure or counselling services on beauty, face care or make up or such other similar services.


Dry cleaners

 

Services provided or to be provided to any person in relation to dry cleaning.

 

Health clubs and fitness centres


These include services provided or to be provided to any person by a health club and fitness centre in relation to health and fitness services.

 

Legal consultancy services


These include services provided or to be provided to a business entity by any other business entity. Services shall be related to advice, consultancy or assistance in any branch of law.

 

In this case a ‘business entity’ includes an association of persons, body of individuals, company or firm but does not include an individual.

 

Real-estate agents


These include services provided or to be provided to any person, by a real-estate agent in relation to real estate.

 

In this case, a ‘real-estate agent’ means a person who is engaged in rendering any service in relation to sale, purchase, leasing or renting, of real estate and includes a real-estate consultant.

 

A ‘real-estate consultant’ means a person who renders in any manner, conception, design, development, construction, implementation, supervision, maintenance, marketing, acquisition or management, of real estate.
GV Ramakrishna

 

(The writer is former SEBI chairman, former chairman-Disinvestment Commission and former member, Planning Commission of India)


-- Sucheta Dalal