INTRODUCTION OF INTRODUCTION OF SERVICE TAX SERVICE TAX

&& ITS NEED IN THE ITS NEED IN THE

ALL-ROUND ALL-ROUND DEVELOPING ECONOMYDEVELOPING ECONOMY

SERVICE TAX ?SERVICE TAX ?It is an Indirect Tax on service service industryindustry.Service is a performance of any performance of any duties or workduties or work for another.Levied upon specified services and not on tangible objects.not on tangible objects.Levied upon specified personsspecified persons on service provided to specified specified consumersconsumers.

Tax is levied on servicelevied on service and not on Manufacturing,Profession, Income, Profit or Sale of Goods.

Service Tax is thus carrying the tax carrying the tax

to the point of consumption to the point of consumption i.e. the last point.

SERVICE TAX ?SERVICE TAX ?

Need For Taxing ServicesNeed For Taxing ServicesFor moving towards full-full-fledged ‘VATfledged ‘VAT’.To include service sector into the stream of central stream of central taxationtaxation.For broadening broadening tax base.tax base.For collection of more revenuemore revenue

Dr. Manmohan singh introduced service tax in 1994

Service tax introduced in 1994

Increase In Taxable Increase In Taxable Categories of Services Categories of Services

3 3 6

1827 27

42

53

6371

80

93100

0

10

20

30

40

50

60

70

80

90

100

1994 1996 1998 2001 2003 2005 2007

Categories of services

100 Categories of Taxable Services

Sectoral structure of world economies

25%

11%

2%

38%

35%

32%

35%

52%

66%

Low IncomeCountries

Middle IncomeCountries

High IncomeCountries

Agriculture Industry Services

Percentage of GDP

Service

Service

Service

SERVICE SECTOR in INDIA at 55%

INDUSTRY 26.4% of GDP

SERVICE 55.1% of GDP

AGRICULTURE 18.5% of GDP

Change in contribution Sectors Of Economy

PRAPORTION OF DIFFERENT SECTORS OF ECONOMY

PER CAPITA INCOME OVER TIME

SERPASSING OTHER SECTORS - 68.6% Growth

Share of services in GDP

Finance Minister SpeaksFinance Minister Speaks

“………….Growth will be sustenance by increased production and value added in agriculture, a marked amount in industrial production and continued continued buoyancybuoyancy in the performance of service service sectorsector”.He further added that he would like to align Indian Tariff strongly to those of ASEAN Countries and would also desire to have a uniform rate of tax on goods and services.

REVENUE GROWTHREVENUE GROWTH

411 846 1022 976 1788 2072 2612 3305 4125

8300

14150

23055

38169

0

5000

10000

15000

20000

25000

30000

35000

40000

Rs.

(in

cro

res)

1994-95

1996-97

1998-99

2000-01

2002-03

2004-05

2006-07

Yearsservice tax

GROWTH IN ASSESSEE GROWTH IN ASSESSEE BASEBASE

NumberNumber of Service TaxService Tax AssessesAssesses in India

2003-04 4,03,856 2004-05 7,74,988 Increase of 91%Increase of 91%

2005-06 8,46,155 Increase of 9.18%Increase of 9.18%

Salient Features OfSalient Features Of Service Tax Service Tax

Extend to whole of India except J&Kwhole of India except J&K..Service provider is normally responsible for payment of tax. In specified situations the person receiving the service is liable to pay service tax.Service Tax can be charged on specified taxable services.Service Tax is levied @ 12%levied @ 12% of value of service charged with 2% Educational 2% Educational Cess & 1% Secondary Higher Education Cess & 1% Secondary Higher Education CessCess.Service Tax credit is allowed across goods credit is allowed across goods and services.and services.

Salient Features OfSalient Features Of Service Tax Service Tax

Service provider is responsiblervice provider is responsible for payment of tax.Service Tax liability created when liability created when chargedcharged but has to be paid only paid only when payment is receivedwhen payment is received..

Threshold exemption from 1.4.2007 exempting from service tax, the aggregate value of taxable services not exceeding eight lakh rupees received by the service provider during a financial year.

Salient Features OfSalient Features Of Service Tax Service Tax

Export of services without payment of service tax has been made with effect from 15.3.2005.Import of services brought into the tax net.Administered by the Central Excise Commissionerates working under the Central Board of Excise & Customs through the process of self-assessment, revision, appeals, penalties, etc.Powers given to Government to grant exemption and rebates in appropriate cases.

Definition Of WordsDefinition Of Words‘Service ProviderService Provider’ and ‘Categories of Categories of Services’Services’ as defined can only be taxed. Understanding the definitionUnderstanding the definition of specified words is important for interpretation.interpretation.100 Categories of services are presently taxable out of 107 specified categories of service on 74 types of person liable to pay and 8 broad types of person to receive the service.

Mission of Ministry of FinanceMission of Ministry of Finance Realizing the revenues in a fair, equitable and efficient manner Administering the Government's economic, tariff and trade policies with a practical and pragmatic approach. Facilitating trade and industry by streamlining and simplifying Customs, Excise and Service Tax Processes and helping Indian business to enhance its competitiveness. Creating a climate for voluntary compliance by providing guidance and building mutual trust. Combating revenue evasion, commercial frauds and social menace in an effective manner.  

CONCLUSIONCONCLUSIONSERVICE TAX ADMINISTRATIONSERVICE TAX ADMINISTRATION

Requires revamping and separate Requires revamping and separate comprehensive legislation.comprehensive legislation.

DistinctDistinct Administrative MachineryAdministrative Machinery

Aimed to bring in greater Aimed to bring in greater clarity, clarity, streamlined-proceduresstreamlined-procedures, , greater greater taxpayer assistancetaxpayer assistance & & new tax culture of new tax culture of voluntary voluntary compliancecompliance

Information onInformation on WEB SITE WEB SITE

Web SitesWeb Sites loaded with information provided by the Government to guide assesses in service taxservice tax matters:

www.finmin.nic.inwww.cbec.gov.inwww.excise.gov.inwww.exciseandcustoms.gov.inwww.exciseandservicetax.nic.in

I sincerely acknowledge the guidance and feed back received from my brother colleaguesbrother colleagues specially Mr. Mr. Naveen Garg, Chartered AccountantNaveen Garg, Chartered Accountant and Mr. Arvind Sharma, AdvocateMr. Arvind Sharma, Advocate.I express my sincere thanks to my office staff in assisting me for preparation of this presentation.

R-13/24, RAJ NAGAR, R-13/24, RAJ NAGAR, OPP. A.L.T.C., OPP. A.L.T.C., GHAZIABADGHAZIABAD

PH: 0120-2820380,PH: 0120-2820380, 28214072821407