Finance ministry looks to widen service tax net

Comprehensive legislation on service tax likely to find mention in Budget

A Rs 400 crore shortfall in the total service tax receipts for 2003-04, pegged at Rs 8,300 crore in the revised estimates, has led the finance ministry to look at ways to diversify the scope of the levy.

According to revenue figures, more than 90 per cent of the service tax receipts at present are provided by only 10 types of services, out of the 58 taxable entities. Of these, telecom accounts for almost 50 per cent.

In the last fiscal, this service contributed nearly Rs 3,800 crore to the total collections. In 2002-03, of the Rs 5,000 crore realised from this tax, Rs 2,129 crore came from telecom service providers.

Ministry officials said the introduction of a comprehensive service tax legislation as a part of the initiative to scale up the scope of the tax would not be possible before the presentation of the Budget in Parliament in July.

They said Finance Minister P Chidambaram might, however, mention in his Budget speech that such a Bill would be introduced later this year.

Service tax is expected to play a major role in the tax mobilisation efforts of the United Progressive Alliance government in this fiscal. The states have already made representations to the 12th Finance Commission that they should be allocated the lion's share of the tax proceeds.

The officials said under the comprehensive service tax law, instead of enumerating the types of services that would be taxed by the government, there would be a short negative list of services that would remain outside the purview of the tax.

The officials also said while the scope for extending service tax to new categories of occupations were immense, there were problems galore. While public services would almost certainly have to be excluded from the tax net, software services were also unlikely to be included.

The sources said if such large exemptions were to be built into the tax, the scope for additional collections would be minimal. 

In the last fiscal, for instance, of the 10 new services that were introduced, none grossed more than Rs 100 crore each. But it had served to raise the number of service tax assesses substantially to over 300,000.

The Central Board of Excise and Customs (CBEC) had also launched door-to-door enumeration of service tax payers across the country, to give a leg-up to the collection of the tax and also increase the number of assessees. Also, the department has kept to the minimum the extent of paperwork involved in filing the tax, which was introduced in 1994-95.

For instance, to ensure largescale compliance, the CBEC has allowed assessees to file their returns electronically. Unlike the other tax categories, taxpayers could submit half-yearly returns.

The indirect tax department is also depending on voluntary compliance by assessees, which it sought to assist by holding camps in the major cities.