The Hindu Business Line : Operational issues impede service tax collections

Operational issues such as inadequate manpower and infrastructure, low compliance and ineffective check mechanisms have impeded the smooth functioning of Service Tax Department.

According to senior tax officials, service tax collection is becoming an increasingly absurd and incongruous affair.

With the kind of infrastructure provided to the department, it will be difficult to cope with the collections, a top official of the Mumbai Service Tax Commissionerate said.

The Mumbai Commissionerate accounts for nearly 40 per cent of service tax collected from all over the country. The region amassed service tax worth Rs 7,700 crore (from around 1,30,000 assessees) in the previous fiscal and has hefty target of Rs 13,860 crore this year. The all-India figures touched Rs 23,000 crore last fiscal.

When service tax was introduced in 1994, it covered just three services.

In little over a decade, it has expanded to cover 96 services and the rate of levy has shot up from 5 per cent to 12.24 per cent.

Among others, the taxable services today include the services of chartered accountants, courier, transport of goods and even banking services.

Chinks galore

Rampant non-compliance and under-valuation bore the biggest hole in the service tax kitty. Low filing of returns and feigning ignorance of the tax still eat up a large portion of the tax collectible.

The department had exceeded the set target in the last fiscal despite a large chunk of collectible revenue lost due to evasion and non-compliance. "If national figures of the last fiscal are compared with our assessee data (prepared using internal records and intelligence wing inputs), the Government has lost about Rs 5,000 crore in the previous fiscal,'' said a member of the All-India Federation of Central Excise Gazetted Executive Officers.

The Rs 4 lakh-exemption (for service providers whose annual income is less than Rs 4 lakh) is being flouted by people.

"This exemption is being severely misused by medium-sized companies. They float small subsidiaries and file returns in the name of these companies showing that their income (standing alone) is below the ceiling amount,'' said a service tax inspector.

Due to absence of measures to verify the addresses of residence (of tax payers) at the time of registration, many have registered in fake/contact addresses. This hampers departmental actions such as sending a show-cause notice and enquiry, the tax officials said.

Inadequate staff

"There is an impending need for about three more new commissionerates and about 650 personnel in Mumbai. We are only a small team of around 200 personnel (clerical staff included) now. We need good manpower to plug tax evasions, discourage non-compliance and effect more adjudication,'' said an office-bearer of the Federation.

The Service Tax Commissioner, Mr S.J. Singh, said, told Business Line, "We have given suggestions to the Ministry to incorporate prosecution clause to service tax. This will minimise frauds and evasion to a good extent.''

Mr Singh, however, refused to comment on low working staff and infrastructure.

However, a Joint Commissioner said, "Recruitment has not taken place for quite some time now. We will have to work with inadequate staff for some more years as the Centre is not acceding to our suggestions.''