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No relief to new services caught in tax net

Subhomoy Bhattacharjee

The finance ministry has decided against granting any exemption from service tax on the basis of turnover to the ten new services brought under the tax net in this Budget.

The move will impact health clubs, fashion designers, beauty parlours, cable operators, travel agents, dry cleaners and event management companies.

All of these service providers will have to pay a 5 per cent service tax based on their turnover. The ministry hopes to mop up Rs 60.26 billion from the levy of the tax in the current fiscal compared to Rs 36 billion in the last fiscal.

The ministry has told Parliament that a threshold-based exemption to service providers will lead to a fall in the revenue. The ministry's comments were in response to a query by the standing committee on finance on M Govinda Rao panel recommendations about imposition of service tax.

The Rao committee had said, "The unorganised sector and small-service providers should be kept out of the purview of the service tax by prescribing a threshold exemption limit of annual turnover of up to Rs 1 million."

But the ministry in its response said in view of the substantial loss in revenue and possible leakages that such a step entailed, it did not consider it necessary to accept the recommendation.

The ministry also said a separate directorate of service tax would be carved out under the ambit of the Central Board of Central Excise and Customs. It would be headed by an officer of the rank of the chief commissioner as part of the cadre restructuring exercise of the CBEC.

While the central excise commissionerates would handle the service tax at the field level, the monitoring would be done by the new directorate, it added.

The Centre has also ruled out the possibility of reimposition of service tax on transport operators and tent houses till the issue of which services should be taxed by states and which by the Centre is resolved.

In its answer, the ministry has also justified the selective imposition of service tax on selected commodities.

A number of tax analysts had recommended that the government should agree to a threshold limit for imposition of service tax. S Madhavan of PricewaterhouseCoopers said the cost of collection from the small entrepreneurs would be high compared to the amount of revenue realised.

Besides, the CBEC was not equipped to deal with small-scale traders and this could lead to revenue slippage, since it did not even have a data base of such enterprises across the country, he said.

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