Govt may net more tax from services sector

New Delhi, November 25: | Updated: Nov 26 2001, 05:30am hrs
The services sector is set to be one of the focus areas for additional resource mobilisation in the next Budget. With the customs duty realisation substantially down and the excise duty mop-up being flat due to the ongoing slowdown, the services sector is the only area left on the indirect tax front from which additional revenue can be tapped.

Finance ministry sources told The Financial Express government was examining the reports of the expert committees on service tax at various levels for this purpose.

According to a senior ministry official, with most of the services in the organised sector already covered under the service tax net, the Budget discussions this year are likely to be focussed on how to tax the services in the unorganised sector. However, for a substantial increase in revenues from service tax, the current 5 per cent tax rate will have to be revised upwards, he added.

The government is also considering to allow the states to collect taxes on some of the services of the local nature from next year. A committee headed by the additional revenue secretary has been entrusted with the job of identifying these services. Sources, however, said it would be difficult for the Centre to include any major service in this category, adding the recommendations of the expert committee, headed by M Govinda Rao, was likely to be considered as the base for Budget discussions on service tax, which had favoured a comprehensive coverage of services.

The panel constituted by finance minister Yashwant Sinha last year had submitted its final report to the government on March 30 this year.

The committee had drawn up a roadmap for comprehensive coverage of the services sector, with a well-defined negative list of services, for eventual evolution into a Centvat on goods and services by the 2004-05 fiscal.

The panel had also suggested that services relating to public utilities, essential health, and educational services, and sovereign functions of the state be excluded from the tax net. Further, certain services which were developmental in nature or which catered, primarily, to the lower strata of the society could also be exempted for a shorter period, it added.

The panel further had suggested that the small service providers be kept out of the tax purview by prescribing a reasonable threshold exemption limit.

Starting with three services - telephones, non-life insurance and stock brokers in 1994, the Centre had extended the tax net to 26 services till 2000-01. In the 2001-02 Budget, 14 more new services were added to the list, including scientific and technical consulting, broadcasting services, banking and other financial services (excluding insurance), port services, and authorised automobile service stations for service/repair.

The Budget target for service tax collection during the current fiscal was enhanced to Rs 3,600 crore from the past fiscals Rs 2,200 crore level. The tax realisation during 2001-01 was estimated at Rs 2,581 crore, 17.31 per cent higher than the target. Sources said the service tax realisation during the current fiscal, too, was set to be more than the target, adding the ultimate aim of the Centre was to reach a figure of around Rs 10,000 crore annually in the coming years.