While service tax collections have shot up over the past few years, there could be a natural ceiling to their growth. The reason for this is simple: while many argue that service tax collections should rise to half the total tax collections (it's less than a tenth at present) since services comprise half the country's GDP, others argue the share of services has been vastly overestimated. Apart from the issue of how much of services output is contributed by small and tiny units who would, in any case, be below the threshold level for taxes, there is the issue of what actually constitutes services. According to Vishnu Kumar, Aloke Kar and Sanjay who've analysed this in an article in the September 15 issue of the Economic and Political Weekly, over 64 per cent of the establishments in the unorganized manufacturing sector were solely engaged in the production of manufacturing services. These establishments, according to the authors, have a share of 50 per cent in the gross value added of the unregistered manufacturing sector which, in turn, accounts for a third of the gross value added in the entire manufacturing sector. There is also the issue of services that go into manufacturing and therefore get taxed as excise duty. In short, the services sector may not quite be the tax cow it is believed to be.
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