Immunity boost for service tax

FM estimates 35% jump partly through one-year voluntary disclosure scheme

Although the finance minister did not tinker with the service tax rate of 12 per cent, he expected the levy to yield 35 per cent more revenue at Rs 1.80 lakh crore to the exchequer in 2013-14 over the Revised Estimate (RE) of 2012-13. The confidence stems from the immunity scheme to some one million evaders if they came forward to pay service tax.

Those coming forward to file returns since October 1, 2007 will be spared penalty and interest rates, he promised.

The 35 per cent increase in service tax collection for 2013-14 is expected at a time when gross tax collections are rising just 19 per cent rise over the RE of 2012-13.

For 2012-13, service tax along with personal income tax, will contribute more to the exchequer than was estimated when the previous Budget was presented.

At present, service tax is the lowest contributor to the exchequer even though the sector accounts for the highest share of India’s GDP. It will still be the least contributor in 2013-14, but will rapidly catch up with its customs duty and excise duty counterparts, which are projected to yield Rs 1.87 lakh crore and Rs 1.97 lakh crore respectively.

However, Voluntary Compliance Encouragement Scheme is just a one-year phenomenon, so it will not swell tax collections from the services sector after that.

The finance minister also reduced abatement by five percentage points to 70 per cent for homes or flats with aa carpet area of at least 2,000 square feet or a value of at least Rs one crore. This means that this category will have to pay service tax at the rate of 8.4 per cent against 9 per cent at present.

He has also removed the distinction between air conditioned restaurants offering liquor and those not serving the alcohol so far as service tax is concerned.

There has also been some tinkering with the negative list — a category exempted from service tax— by bringing some vocational institutes and testing activities in farm under it.

Service tax collections are projected to grow seven per cent to Rs 1.33 lakh crore in the RE  of 2012-13 from Rs 1.24 lakh crore in the BE.  The robustness of the tax collections under this head could be gauged from the fact that gross tax collections are estimated to decline 3.67 per cent to Rs 10.38 lakh crore in the RE against Rs 10.78 lakh crore in the BE. In 2012-13, the government came out with a negative list of services with around 20 categories under it. Earlier, it had a positive list, which excluded large areas of the tertiary sector.