IIA Comments & recommendations on Service Tax to Mr. P. Chidambaram, Finance Minister Government of India:

Indian Industries Association (IIA) an apex body of SME’s submitted the followings comments and recommendations on the Service Tax to Mr. P. Chidambaram, Finance Minister, Government of India:

  1. Rate of Service Tax

Facts

  • Service Tax @ 2% was started on 3 services by Finance Act 1994 which was raised to 5% and with Finance Act 2003. w.e.f. 13/5/2003 it was 8% and number of services increased to 58. Now the taxable service are increased to 71 and also rate to 10% (effectively 10.2% including 2% cess)

IIA Comments & recommendations

  • IIA welcome widening of the Service Tax net but increase in the Service Tax Rate is not justified. Historically, it can be verified that increase in the tax rates has not necessarily resulted in increase in Govt. revenue. Rather increase in tax rates increases the tendency for tax evasion and results in rise of corruption.

IIA therefore recommends very strongly that Service Tax Rate should be brought down to atleast 5%. Government may also use IT tools for better realization of tax revenue and to reduce human interface.

  1. Exemption Limit :

Facts:

  • There is no exemption limit for taxable services hence service tax is applicable from day one when Service Provider starts business.
  • Government does not seems to be geared up to monitor the collection of Service Tax from all the Small & Tiny service providers spread over every nook & corner of the town and village.
  • At present, when government is not able to monitor/catch few Income Tax and Excise payers where exemption limit is applicable, how will it be possible for it to monitor much large number Small & Tiny Service providers
  • Service Tax evasion by Small & Tiny Service providers under present provisions will be common and corrupt officials will exploit the situation for their personal gains hence will give rise to large scale corruption.
  • Small & Tiny Service Providers will not be able to keep records & file returns etc. Hence will be exploited by corrupt officials.
  • The cost of collection of Service Tax from Small & Tiny Service providers will be more than the service tax collections.

IIA Comments & recommendations

Exemption limit for taxable services should be fixed at Rs. 25 lacs of the total turnover.

  1. Separate Code for Service Tax

Facts:

  • At present there is no separate code for Service Tax. At many points, the reference of Central Excise Act is applied to administer and monitor it.

IIA Comments & recommendations

A separate code for Service Tax should be devised and made applicable.

  1. Retrospective Amendments

Facts:

  • Frequent retrospective amendments in Service Tax Act are being made which disturbs the interpretation of law during the relevant period and liability for payment increases subsequently.

IIA Comments & recommendations

Retrospective amendments in the Service Tax Act should not be made. The amendments should be prospective and published widely including through industry and services association.

  1. Credit of Service Tax

Facts:

  • Credit of Service Tax and Central Excise Duty is proposed to allow across goods & Services for which detailed provisions are yet to be notified. The SMEs with limited area of work and limited manpower will find it difficult to get credit and will become uncompetitive.

IIA Comments & recommendations:-

The procedures for Service Tax Credit should be short and simple so that SME’s are able to complete the formalities easily.