Failure To Levy Tax On Transporters To Cost Govt Rs 5,000cr

The Indian Foundation of Transport Research and Training has recommended that the controversial service tax should be collected from the 50,000 transport companies. Prasun Sonwalkar examines the radical recommendation.

The government stands to lose at least Rs 5,000 crore this year in potential revenues because of its failure to levy the controversial 5 per cent service tax on the road transport sector. In April, the government relented on the issue after a nine-day strike by the road transporters that had a crippling effect on the economy.

An agreement reached with the All India Motor Transport Congress (AIMTC) makes it more difficult for the government to take action at this stage. The government had committed in the agreement that no service tax would be collected from the transport operators even though a provision for this had been made in the budget for 1997-98.

Last week, senior officials in the finance ministry admitted they were in a fix over the issue of levying the service tax from this sector. They admit they have few options to wriggle out of the situation with the surface transport ministry unwilling to lend a helping hand to deal with a vexed situation. The surface transport ministry is said to be loathe to take the responsibility of resolving the imbroglio as it may spark another confrontation with the transport operators.

The situation was highlighted in a report prepared by the Indian Foundation of Transport Research and Training (IFTRT) submitted to Union finance minister P Chidambaram at the end of July.

Subsequent interactions by the ministry at various levels have failed to spawn any significant solution. Officials, however, admit that the situation highlighted by the report calls for immediate action as the ministry can ill afford to lose Rs 5,000 crore a substantial sum that could greatly boost its revenues.

The bid to impose service tax on this sector has been plagued by flaws as has been made apparent by the report. In his budget speech, finance minister P Chidambaram had said that Rs 900 crore would be collected by imposing a 5 per cent service tax on the ten new services including a transporter of goods by road. However, the Indian Foundation of Transport Research and Training reports states that from the road transport sector alone, the tax collected would be to the tune of at least Rs 5,000 crore per annum.

The average freight per vehicle per year is about Rs 5 lakh on which a five per cent tax works out to Rs 25,000. In view of 30 lakh vehicles on the road, the total tax to be collected, thus, works out to Rs 7,500 crore, with the report willing to go by the more conservative estimate of Rs 5,000 crore. The budget proposal had, subsequently, triggered the nine-day stir from March 31. To break the impasse, the government then agreed to change the mode of collection (of service tax) in such a manner that tax would not be collected from road transport operators.

As a way out, the IFTRT suggests that the government make the 50,000 transport companies the nodal point for collecting tax through the GR (goods receipt) by making an extra provision in the GR (also called bilti). The 50,000 companies together constitute a far more manageable tax base rather than the lakhs of truck operators who, in any case, operate as co-loaders of the transport companies, points out the report. Transport companies own barely 5 per cent of the countrys fleet of commercial vehicles while the remaining 95 per cent is in the hands of small operators. The 95 per cent are attached or are heavily dependent on the 50,000 transport companies, who are more organised than the small operators.

The entire burden of taxation from the zilla parishad to the Central government level is borne by the truck owners. Paradoxically, the well-organised transport companies do not bear any significant tax related to road transport services, the report states. Even though the transport companies are organised, the government has not implemented regulatory provisions (Sec 93) in the Motor Vehicles Act, 1988, which makes it mandatory for them to obtain a licence. Invoking this provision and regulating the transport companies would make it easier for the government to make them the nodal point for collecting the service tax.