Service Tax Brings Bumper Revenue Crop For India

by Lorys Charalambous, Tax-News.com, Cyprus

26 September 2006

An increase in the tax rate and the number of services covered by the service tax net will push revenue from this levy to R50,000 million (US$10.9 billion) during the current fiscal year against the targeted figure of R40,000 million, according to industry body Assocham.

Assocham President, Anil K. Agarwal revealed this week that the service sector has registered substantial growth in the last couple of years and this trend will continue to yield high revenue collections for the government.

He added that in 2003-04, the Finance Ministry earned a revenue of R7,750 million through service tax imposition which almost doubled to R14,150 million in the subsequent year, 2004-05.

In fiscal 2005-06, the government earned R23,000 million by way of service tax collections and it fixed a target of R34,500 million for 2006-07 at the time of budget presentation. This was revised by the Finance Ministry officials to R40,000 million.

However, according to Assocham, service tax evasion has been "significant" and tax officials have begun to increase search and seizures. Meanwhile, the Chamber reported that multinational companies and large corporations have been voluntarily paying off their dues "for fear of being caught".

The Chamber has also pointed out that since the intention of the government is to move towards Goods and Services Tax (GST) by 2010, it is important that all states should introduce VAT at the earliest opportunity.

It has also called on the central government to bring all services under the tax net barring basic essentials and public utilities.

"It is important that a comprehensive Service Tax Act should be put in place instead of amending the Finance Act year after year," the Chamber argued.

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