Tax collections from
service tax, first introduced in 1994, will cross customs and excise duties for
the first time in financial year 2014-15, an indication of the growing
importance of services to India’s economy.
The only two tax heads that will
contribute more than service tax are corporate tax and income tax. Here’s a look at the 10-year data on
From a modest base of around Rs 23,000
crore in 2005-06, service-tax collections are expected to skyrocket 830% to Rs
215,973 crore in the financial year 2014-15.
Tax collections, on
the whole, have increased over the last 10 years. Net tax revenue to the
central government is expected to increase from Rs 270,264 crore in 2005-06 to
Rs 977,258 crore in 2014-15, an increase of 260%.
So, what is service tax?
This is the official definition, from
information provided by the Directorate General of Service Tax: “Service
tax is a tax on transaction of certain services specified by the central
government under the Finance Act, 1994. It is an indirect tax (akin to excise
or sales tax), which means that normally the service provider pays the tax and
recovers the amount from the recipient of the taxable service.”
In simple language, service tax is a
percentage of the amount collected from a customer for services offered.
Examples of services include hospitality, travel and construction. Services as
a percentage of gross domestic product (GDP) has increased from 50% in 2000-01
to nearly 60% in 2013-14. The actual value of services (at constant 2004-05
prices) has increased from Rs 15,76,255 crore in 2004-05 to Rs 34,41,017 crore
The current service tax rate is 12%.
With an additional 2% as education cess and 1% as senior and higher education
cess, the effective service tax rate now is 12.36%.
When it was first
introduced in 1994 by the then finance minister Manmohan Singh, service-tax
collections were Rs 407 crore. Starting 2012, all services, except those
specified in the negative list, are subject to service tax. The negative list
includes services by the government, Reserve Bank of India, services by foreign
diplomatic missions in India and services relating to agriculture.
Reprinted with permission from
Indiaspend.org, a non-profit, public-interest, data journalism initiative