INDIA BUSINESS WORLD - FEBRUARY 2007
The Month that was ...

GOVT TO EXCEED SERVICE TAX TARGET BY RS 6,000 CR

THE government is set to exceed the target of Rs 34,500 crore for service tax for this fiscal by close to Rs 6,000 crore on the back of buoyant collections in an economy poised to grow at over 8.5%.

According to officials, the government will end the fiscal netting an additional Rs 6,000 crore from service tax. At the current pace at which the economy is growing, the government reckons that there is further potential to generate additional revenue from service tax this year. Sources in the directorate of service tax said it was almost certain that the collection figures would cross the Rs 40,000-crore mark this year.

This is the first time since the roll out of service tax 13 years ago that the target has been upwardly revised in a fiscal. The target of Rs 34,500 crore for the current fiscal was 50% more than the collection in 2005-06. The services sector now account for 54% of the national income and considering the revenue potential of this sector, the government is bound to include more services under the service tax net in the Budget.

According to sources, the government is considering bringing 12 more services in the tax net next fiscal. The potential list includes services provided by lawyers, doctors and fee for services like supply of electricity and listing on stock exchanges. The concept of preparing a negative list is also under active consideration. For over six years the proposal to prepare a negative list and tax all services that are not in the list has been mooted, but sources say it will take a little longer before the idea is implemented.

Revenue generation through service tax has already become critical to the government's plans for a higher revenue mop up as it foresees a steady decline in Customs duty collections with the government slashing customs duties progressively. With revenue from Customs duties bound to decline in the coming years, service tax is seen as the additional source of revenue that would offset the likely revenue shortfall.