Services tax collection wilts in Dec

Down 5.2%, dragging down year's estimated rise even more; total rise in indirect tax collection at 6.7% in April-Dec against 20% target

Taxes on services, the biggest sector of India's economy, declined by 5.2 per cent in December year-on-year, as a result of which overall indirect tax collections rose only 5.1 per cent in the month. This could aggravate the finance ministry’s concerns over the fiscal deficit.

However, excise duty collection rose 17.2 per cent the same month. It is normally the reverse way, in that excise duties lag and service tax brings major numbers for the kitty.

For the first nine months of the ongoing financial year, indirect tax collections, which encompasses Customs duty, services tax and excise duty, rose 6.7 per cent over a year earlier, to Rs 377,648 crore as compared to Rs 354,049 crore earlier. The year's Budget has targeted 20 per cent growth for indirect tax realisation. With the latest number, 60 per cent of the target has been met, leaving 40 per cent of the targeted Rs 623,244 crore or Rs 245,596 crore to be realised in the final three months (January-March).

In the first eight months of the current financial year, the Centre's cumulative fiscal deficit has already touched close to 99 per cent of the full year's estimate. The biggest setback has been the slowing in service tax collection, pegged to grow by 30 per cent for the financial year. The growth has been only 8.7 per cent in April-December.

In December, as mentioned earlier, the collection was down 5.2 per cent over the same months a year before, from Rs 17,905 crore in December 2013 to Rs 16,979 crore last month. Till December, tax under this head grew by 8.7 per cent at Rs 119,400 crore as against Rs 109,887 crore in the year-ago period. This amounts to an achievement of 55.3 per cent of the target fixed for the entire year.

It was actually for the first time that service tax collections had been targeted to yield the highest revenue among indirect taxes to the exchequer.

Experts said in spite of targeting e-commerce companies, collections weren't being boosted. A national goods and services tax is the way to remove the multi-level taxation the department has to battle with and which, in many instances, leads to muted collection.

“Primarily the issue is the understanding of law by the department. In many cases the laws have changed while taxing services in India, where the department is yet to catch up,” said Ashish Sodani, member, international tax practice, at Nishith Desai Associates.

That December's excise duty collections grew 17.2 per cent indicates the manufacturing sector has gathered steam. Till December, these collections had risen only 1.6 per cent over a year, at Rs 119,719 crore against 117,877 crore in April-December 2013.

Collections from Customs increased from Rs 126,285 crore in April-December 2013 to Rs 138,529 crore during April-December 2014, a rise of 9.7 per cent, enabling 68.6 per cent of the fixed target.

“The targets, by their very nature, are not arrived at scientifically. It is important the government rationalises the tax regime in terms of changing laws,” said Vivek Mishra, leader, indirect tax, PricewaterhouseCoopers.