Despite negative list, service tax coverage yet to increase

Shortage of manpower a hurdle

Introduction of a ‘negative list’ for comprehensive taxation of the services sector was touted as a major tax reform. But, even after a year of its introduction, few new services have been brought in the tax net. Thanks to a manpower shortage, officials of the service tax department have not been able to identify new services that could be taxed.

Unlike the earlier regime where only 119 services were taxed, the introduction of a negative list in July 2012 had given the government the power to tax all services, except the 17 on the list.

Officials say they continue to levy tax on the same set of services under their ambit before the negative list was implemented, besides a few more tertiary items that became taxable when the exemption list was pruned from 88 to 34 under the new regime. (A NON-STARTER REGIME)

“The negative list has not been implemented effectively. That’s because no one knows how to do it. There’s need to conduct surveys to tap new taxpayers but not much has been done because of manpower crunch. It has become a voluntary service,” an official from the department, who did not wish to be named, told Business Standard.

Another official agreed, saying it was difficult for service tax commissioners to map each activity and determine whether it is a service.

The department is planning to conduct some field surveys to identify new services over time but it will need additional staff for that.

Under the cadre-review proposal of the Central Board of Excise & Customs (CBEC), there is a demand to set up 15 more exclusive service tax commissionarates. At present, there are seven —two in Mumbai and one each in Delhi, Kolkata, Chennai, Ahmedabad and Bangalore. At other centres, service tax is being administered by central excise commissionrates — 67 at present.

CBEC’s cadre-restructuring proposal, if approved, will add 20,000 officers to its existing workforce of 66,808, taking its strength to 86,808. That might give it additional revenue of about Rs 68,000 crore a year.

Service tax collections have grown from Rs 410 crore in 1994-95, when the year service tax was introduced, to Rs 1,32,518 crore in 2012-13. This year, the government has set a target of Rs 1,80,141 crore but collections till August were only Rs 49,103 crore — about 27 per cent of the Budget Estimate. The government had projected an increase of 36 per cent in 2013-14, but the mop-up growth so far has been just 14.3 per cent over the five-month period last year.

The total number of taxable services has increased from three in 1994 to 119 in 2012. The assessee base has increased from 3,943 to 1,712,617 but there is scope to include many more assessees under service tax ambit.

Services, including construction, constitute more than 60 per cent of India’s gross domestic product. It matches the level in advanced economies of the western Europe, North America and the Fareast, where the share of service sector in GDP ranges from 60 per cent to 80 per cent. However, in India, service tax collections accounted for just over 12 per cent of the total tax collections and over 28 per cent of indirect tax collections in 2012-13. For 2013-14, service tax collections are projected to constitute 14 per cent of the total tax mop-up and more than 31 per cent of the indirect tax kitty. The growth in absolute quantum of GDP and the proportion of the service sector in GDP hold promise for larger revenue generation, without increasing the existing level of taxation.