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Business News/ Politics / Policy/  Service tax seen topping excise, customs collections
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Service tax seen topping excise, customs collections

The government aims to collect more than Rs2.15 trillion in service tax this fiscal

Photo: MintPremium
Photo: Mint

New Delhi: Service tax collections are expected to exceed excise and customs tax collections in this fiscal year for the first time, prompting the National Democratic Alliance (NDA) government to explore ways to expand the base of service tax payers in the upcoming budget.

With excise duty collections being sluggish because of a slowdown in manufacturing, the government is pinning its hopes on robust service tax collections to reduce the revenue shortfall. But a key challenge will be to ensure that service tax collected by different service providers is deposited with the government. Many entities collect service tax from consumers but do not deposit it with the government.

“Revenue collection trends so far indicate that service tax collections will exceed excise and customs duty collections this fiscal," said a finance ministry official who did not wish to be identified. “Service tax accounts for about 60% of our GDP (gross domestic product) but revenues are not commensurate with the sector’s contribution to GDP. We are looking at ways to expand the service tax base to garner more revenues."

Traditionally, service tax collections have lagged behind excise and customs duty collections. The government aims to collect more than 2.15 trillion in service tax this fiscal. It had set a target of collecting 4.08 trillion in excise and customs tax, but is expected to miss the target.

The government has been looking at ways to expand the service tax base. It introduced a system of taxing service providers in 2012, under which all services that were not part of a so-called negative list would have to pay tax.

That hasn’t helped widen the tax base as anticipated as the government has not managed to bring all service tax providers under the tax net. Many service providers either evade paying tax or don’t know they have to pay the levy.

“The key will be to ensure compliance increases. With the introduction of the negative list-based taxation of services, almost all services have been covered. But revenues have not increased", said another finance ministry official who also did not wish to be identified.

In last year’s budget, the government introduced a voluntary compliance encouragement scheme (VCES) to push service tax evaders to come forward and pay taxes and introduced stringent penal provisions for service tax evaders.

Defaulters who came forward under VCES were given time till December this year to clear all their service tax dues.

In the first eight months of this fiscal year, while service tax collections and excise duty amounted to 1.02 trillion each, customs collections were at 1.23 trillion.

But the final payment under VCES is expected to provide a boost to service tax collections this fiscal year.

Service tax was initially introduced in 1994 and has seen its share in indirect taxes gradually increase. Its share has risen from around 22% in 2008-09 to an estimated 35% in the current fiscal.

The introduction of the negative list has managed to broaden the service tax base over the last few years but its growth compared with other indirect taxes may be mainly on account of the lag in excise and custom duty collections, said Krupa Venkatesh, senior director at Deloitte Touche Tohmatsu India Pvt. Ltd. “Custom rates have progressively come down over the last few years. Also, manufacturing has shrunk in the last few months, impacting excise collections," she said.

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Published: 23 Dec 2014, 12:14 AM IST
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