The tapering of growth in service tax collections in the first half of this fiscal to about 15% — half the rate of the year-ago period and far below the 36% targeted for this fiscal — has prompted finance minister P Chidambaram to order a special drive to clear the backlog of applications pending for service tax registration by businesses. The idea is to bring all taxable service assessees into the tax net and the maintain the high revenue growth from service tax. Budget FY14 envisages service tax collections to be almost at par with revenues from excise and customs.
It is now clear that the decelerating growth in service tax receipts is not only due to possible tax evasion and a statistical effect of the high growth rate in previous years, but also due to the severe manpower shortage affecting the Central Board of Excise and Customs (CBEC) which delays registrations, say official sources.
Thanks to the introduction of the more inclusive “negative list” approach for taxation of services from July 2012, this year’s service tax collection target is kept at R1.8 lakh crore, up 36% over last year. Revenue growth from this levy, envisaged to be the tax of the future in an economy dominated by services, has faltered in H1, belying expectations that adopting the negative list (which means all services except a select few will be taxed) would boost collections.
“The finance minister has issued verbal instructions to all chief commissioners of customs, central excise and service tax to clear the backlog of applications for registration as soon as possible,” said a person familiar with the development. Although data is not centrally maintained, it is believed the total pending applications run into several tens of thousands.
Adding to the backlog is about 7,500-10,000 companies incorporated every month in the country, more than half of which are in the services sector. A similar number of partnerships and limited liability partnerships add to that. This, sources said, is a curious situation, as rather than evasion and recalcitrance of some potential taxpayers, the administration’s inability to get the businesses registered is hampering collections.
Growth in service tax receipts during April-June of 2012-13, which averaged 40% from the same period a year ago, dropped to 34% in the remaining three quarters of 2012-13.
Some officials said the negative list based approach to taxing services is yet to sink in. “We are implementing a major