Service tax collection raised by 25% in last four years

MUMBAI : A consistent rise at which services are taxed could be creating upward pressures on retail price inflation, which economists believe is hard to quantify because of its cascading impact on price of ultimate goods and services.

Some attribute stickiness in CPI inflation, despite a fall in commodity prices like crude oil, to the rising levy on goods and services. Also, the levy, amid a global financial slow global financial slow down, is making the domestic manufacturing sector less competitive.

Service tax collection has grown by a compounded annual rate of 25 per cent over the past four years to an estimate Rs 2.1 lakh crore collected in FY16. That's higher than the tax collected from excise and customs on items like gold, cars, mobile phones, etc. The government raised the service tax from 12.3 per cent in April 2015 to 14 per cent in May 2015. It's further set to rise to 15 per cent from June onwards.

Also the service tax base has gone up over the years as more services were included in service tax fold. Restaurants, petrol pumps and multiplexes are some of the common examples which have been included in the service tax fold over the past few years.

To give an instance, PVR which owns over 500 multiplexes in India, paid Rs 40 crore as service tax in FY16 on sales of around Rs 1,750 crore against Rs 7.3 crore on sales of around Rs 1,348 crore in FY14.

Some experts also attribute not just rising tax rates but government's efforts to stem leakages.

"Higher rates and increased tax base have definitely helped, but the government has taken several steps to ensure that there is no evasion," said Divyesh Lapsiwala, partner with Ernst & Young LLP .

For instance, the service tax department has started using technology to identify tax leakages, making it easy to identify evaders.

In 2013, the government also brought in a voluntary compliance scheme,VCES, which encouraged prior period evaders to pay service tax by waiving the interest and penalties. Besides the tax collection team and audit teams have also been bolstered significantly. 

Source : The Economic Times, dated 25/05/2016.

 
 

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