The Hindu Business Line : Top drivers of service tax

The problem about service tax is that it is complex and ambiguous not only to the common man, but also to the taxmen, the taxpayer and the consultant.

MR S. JAIKUMAR, FOUNDER OF SWAMY ASSOCIATES, CHENNAI

Born in 1994, and now aged 15, service tax is a healthy teenager, observes Mr S. Jaikumar, founder of Swamy Associates, Chennai. “With the developing of muscles (in the form of enforcement) I am sure it will grow stronger in the coming years,” he adds, during the course of a recent interaction with Business Line.

“Awareness and enforcement are the top drivers of service tax growth,” says Mr Jaikumar, who is a law enforcer-turned-lawyer. He was an Inspector in the Customs and Central Excise Department, prior to gaining a degree in law and starting a firm that offers various services in the field of indirect taxes (www.swamyassociates.com ).

Unlike Central Excise and Customs, the clients of service tax are comparatively sophisticated and new to the levy, he notes. “The draconian penalties and consequences envisaged in the law for defaulters are so menacing that the compliance level is growing.” Is the level of compliance in service tax healthy? “Yes, it is compared to the other levies which are still in ICU,” he answers. We carry on our interaction over the e-mail.

Excerpts from the interview:

After a period of very high expansion of 30-40 per cent, the growth of service tax revenue has moderated. Is the slowdown a major cause for the decline?

Like human anatomy, this tax also had its appreciable growth during its earlier years and has now moderated. You should keep in mind that the levy of service tax started in 1994 only on three services, namely, stock-broking, telephones and non-life insurance.

But, over the years, it has increased in more than geometric progression, and today over 100 services have been brought under the tax net. Every year more and more services were included. That is the period when we saw substantial growth in service tax collections. But in the last few years, for various reasons, the number of new services brought under the levy has been considerably lower. This, along with the meltdown, could also be a major reason for the moderation in growth.

In what areas are significant cases of evasion detected? Did this year have any new patterns on this count?

Evasion has become an art, though not a desirable one. Whatever ways and mechanisms you conceive of and implement to curb evasion, new and innovative ideas, though notorious, keep cropping up. Being practitioners, we often see very novel modus operandi in every other case we handle. But, by and large, the evasion in service tax is minimal compared to the other levies.

In view of the fact that revenue growth is plateauing, what measures are being taken in the field to augment revenue?

The revenue mill is working overtime.Earlier, the major revenue potential was from Central Excise. But now, sensing the revenue potential, the department has started targeting services.

As in the case of DRI (Directorate of Revenue Intelligence) and DGCEI (Directorate General of Central Excise Intelligence), the premier investigating agencies for detecting Customs and Central Excise offences, I am sure, soon the Department may form a separate Directorate of Service Tax Intelligence to unearth service tax evasion.

Further, the provisions of the Settlement Commission should be made applicable to service tax evasion cases too. As I said earlier, service tax clients are relatively sophisticated and are more compliant. This enabling provision of settlement of service tax cases would motivate the assessees to settle their cases by paying the taxes immediately. This would not only augment revenue for the Department quickly but would also reduce the litigation to a great extent.

It is often said that service tax law and rules have a lot of ambiguity. Would a separate Act make any difference?

Laws are always complex; and tax laws are real cobwebs. Ambiguity and tax laws are inseparable and inevitable. If the laws are made simple and plain, the entire consultant contingent would be an unemployed lot.

But the problem about service tax is that it is complex and ambiguous not only to the common man, but also to the taxmen, the taxpayer and the consultants. Its inclusive definitions are creating much confusion among all concerned.

Today, service tax is governed by the Finance Act, 1994, and many provisions are borrowed from the Central Excise law and, hence, apart from the inherent confusions, there are many more, on the application of borrowed provisions. Definitely a separate law may minimise the ambiguity but the need of the hour is not only a separate law but a clear law.

What is the general perception of taxpayers with regard to revenue administration in service tax? In many advanced administrations, e-governance backs up facilitation as well as enforcement? What is the progress on this front of service tax in India?

The general perception is always that of a lamb about a wolf, which cannot be altered or changed. But a remarkable change in the attitude of the taxmen towards the assessees is perceptible.

True, there are quite a few black sheep in the herd but, on the whole, the system has been consistently improving. This is because of knocking off the various powers from the officers and making the administration relatively transparent.

Further, e-governance is also a major player in this significant improvement. The interface between the taxmen and the taxpayer has been consistently reduced by way of e-filing, e-payments, etc.

How would you describe the indirect tax environment for businesses operating in India? Do foreign investors still find it tough to set up business in India?

You have to be a Roman while in Rome and if you intend to do business in India, you need to adapt to our climate. To me, our indirect tax environment is not that polluted. For foreign investors, we have Advance Rulings, whereby they can know what they are in for before their arrival.

Have any measures been put in place to check corruption in the field of service tax? Are these yielding results?

As shown in the movie Indian, bribe is there everywhere. In other countries they take bribes to do something they are not supposed to; but in India, we take bribes even to do our duty. Like in all other areas and departments, service tax is also corruption-prone and the department takes all possible efforts to curb it. But, as it is said, unless the corrupt person himself realises and changes, it may be very hard to eliminate it.

How prepared are we to move into full-fledged GST? What visible changes will it bring for the assessees and the administration?

In a country like India, with the huge scale of complexities, getting ready in full and then getting into GST (goods and services tax) may not work out. At the most, we can prepare only to an extent and then take a plunge as we did in the case of VAT (value-added tax).

As in VAT we will definitely face many issues and bottlenecks but I am sure we will come out of them. Every new change has its transitional worries and issues. The merger of GST, being very significant, will also face transitional issues. After all, there are no gains without pains. It would bring in a single-point administration of the two major taxes on goods as well as services, which would be a milestone in our economic progress. It will be a beneficial legislation which would end the possible double taxation and benefit the trade immensely.

SMEs complain about the high incidence of tax. Your take on this.

Even after this reduction of duties? I am for increasing the SSI (small-scale industry) exemption limit to at least Rs 3 crore on Central Excise and Rs 50 lakh on services. This would be a breather for the ailing SMEs (small and medium enterprises).

D. MURALI

Detaxification.blogspot.com

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