The Hindu Business Line : Widening the service tax net

The Budget has widened the service tax net by adding seven new taxable services but also provided some relief through exemptions and simplification.

Undoubtedly, the service sector is booming. The sector's growth was 11.2 per cent last year, while it continues to contribute over 55 per cent to gross domestic product (GDP). On revenue collection, the Government expects a collection of over Rs 39,000 crore, against a target of Rs 34,500 crore this fiscal. For next year, the budget is yet higher — over Rs 50,000 crore.

On the service tax front, the good news is that the rate has not been tinkered with (perhaps looking to current inflation worries) but the education cess goes up by 50 per cent — from 2 per cent to 3 per cent — making the effective service tax rate 12.36 per cent. Another proposal that assessees have hailed is about raising the threshold exemption limit of Rs 4 lakh to Rs 8 lakh meaning, thereby, that almost 50 per cent of service-tax assessees (2 lakh, as quoted by the Finance Minister) will be out of the service tax net. They contributed about Rs 800 crore of tax, that is, about 2 per cent of total service tax collection.

Wider net

The Budget has widened the service tax net by adding seven new taxable services — services outsourced for mining of minerals, oil or gas, asset management services, designing, content development and supply for use in telecom or advertising, renting of immovable property for commercial use, and execution of works contract. The scope of the existing nine services has also been expanded in sale of space or time for advertising (to include telephone directories), rent-a-cab operations (to cover hire), mandap keeper, pandal and even management (to cover marriages), banking (to cover cash management and financial leasing), management consultancy (to include business consultancy), consulting engineering (to cover hardware), etc.

Exemptions

Services provided by resident welfare associations (RWAs) and technology business incubators and clinical trial for new drugs have been exempted, which was desirable. Some procedures and rules have been simplified, which are welcome. Notably, one can now file a belated return, of course, with a fine without inviting the hassles of penalty. Self-adjustment of Cenvat credit or refund is also proposed.

Service tax assessees would now be subject to cost audit under the Central excise rules. This may perhaps be resorted to ascertain correct input-output credits of Cenvat credit.

Another welcome move is to simplify the meaning of export, which will now mean `provided from India and used outside India' as against `delivered outside India and used outside India'. All in all, the service tax proposals seems to be balanced, aimed at rationalisation and providing more time to officers for more productive jobs.

Of course, taxing rentals of immovable property does not result in any service. If that be the case, will it mean that all rentals would be subjected to tax in future?

(The author is a Jaipur-based Chartered Accountant.)