Services

In contrast to the extensive literature on the assessment of goods trade and trade barriers, limited attention has been paid to quantify the regulatory restrictiveness of services trade across the globe. This study attempts to build on the services trade restrictiveness index of the Organisation for Economic Co-operation and Development by proposing an alternative that makes the OECD data more amenable to policy purposes.

This paper attempts to analyse the issues involved in extending consumption taxes to the services sector. Although the share of services in GDP is over 50 per cent, its contribution to tax revenue is not commensurate. Further, the prevailing taxes on services are overlapping and haphazard and are not conducive to the evolution of a coordinated value added tax at central and state levels. Besides, it is important to extend the tax also for reasons of revenue. The paper argues that for evolving a rational consumption tax system it is important to levy a general tax on services rather than continuing with the selective taxation prevailing at present. However, there should be a small but well defined exemption list and a negative list to avoid taxing services arising from the sovereign functions of the state and services of a meritorious nature. There should also be a threshold to exclude small service providers. At the central level it is also suggested that by 2004-05 service tax should be merged with the MODVAT to evolve a manufacturing stage value added tax. In the case of states, it is argued that to evolve a destination based retail stage value added tax, it is necessary to give concurrent powers to tax all services subject to certain safeguards to ensure orderly development of the consumption tax system.