The Hindu Business Line : Is service tax `the rent we pay to be living'?

A HYPERACTIVE group in the Finance Ministry has been training its collective nose to catch the scent of any new service that can be included in the tax net. It seems somebody proposed inclusion of the ubiquitous barber but a bald-headed colleague shot down the suggestion saying it would be `the unkindest cut of all.' Another think-tank member, returning from a reconnaissance survey, spoke of the merits in levying service tax on pay-and-use toilets; but a teammate issued a stinking protest during a recess that public loos shouldn't be made more taxing than they already are, notwithstanding any tax loss that may arise in the process.

Dangerously, there're rumours of a document that has made its wheezing way into the `service' room: `Bulletin SST 018' from the Ministry of Provincial Revenue, British Columbia (www.rev.gov.bc.ca) . It is about Social Service Tax Act, which insists that all persons who sell taxable services are required to be registered as `vendors' and that they should remit tax on all taxable sales.

That's not something new, because we too have a system of registration for service providers. But the BC Act has something to cheer PC: the definition of `taxable service' as "any service provided to install, assemble, dismantle, repair, adjust, restore, recondition, refinish, or maintain tangible personal property." This is so tempting as a grab-all clause that we can't blame the Minister if he were to dismantle the old definition on our statute books.

Social Service Tax Act defines `tangible personal property' too, quite `sensibly', as "personal property that can be seen, weighed, measured, felt or touched, or that is in any other way perceptible to the senses." Such property includes fixtures, software and electricity. Fixtures include "equipment that is bolted onto the floor or walls"; however, "equipment that is simply tacked or lightly nailed into place for stability or convenience, that is mobile and that rests in place by virtue of its own weight does not qualify as a fixture."

The bulletin provides examples of taxable services, which is where you'd find watch repair, furniture re-upholstery, repair of TV and computers, painting, maintenance of plants, and so forth. For those providing taxable services, the Act specifies that replacement parts, abrasive paper, adhesives and packaging are exempt purchases. However, the vendors should pay tax "on all tools, equipment used in providing the services" and these include: "hammers, screwdrivers, saws, diagnostic equipment, welders, and paint spraying equipment."

Don't lose all hope because there are services that don't come within the tax net in British Columbia, "provided they do not include the sale and lease of tangible personal property". Examples are monitoring and security services, seminars and training courses, including materials, property management and realty services, packaging and so on.

Also, there's no tax if you provide service to employer in the course of job; such as, "repair of a company truck by a company employee would not be subject to tax." That should be a tax-planning tip: recruit people with skills! Tangible property benignly excludes books, children's clothing and footwear, equipment used by disabled persons, smoke and fire alarm devices priced at under $250, and so on.

Burdened with a catch-everything definition, BC lawmakers have given exemptions through regulations to exclude services such as: hairdressing, massage, manicures, dental work, dance lessons, repairs to household goods, fitting horseshoes, pet grooming, veterinary services, dry cleaning, car washes and so on. Bona fide farmers, fishers and aquaculturists are given a compassionate treatment.

"Service is the rent we pay to be living," said Marian Wright Edelman. Should we rephrase it with a `tax' after `service'?

ExParte@TheHindu.co.in

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