Service tax has been one of the fastest growing sources of revenue for the Government ever since it was introduced in 1994. Collections are increasing at about 30 per cent for the last three years, and the target for next year has been pegged at Rs 1.0 lakh crore. Introduction of negative list in July 2012 has significantly widened the tax base and boosted revenue by bringing services such as Railways under the tax net.

Industry must have heaved a sigh of relief as there was no increase in service tax rates in the Budget. However, in tune with the budget theme to tax the affluent class, tax has been levied on all air-conditioned restaurants. Further, there is an increase in tax for luxury housing projects.

Tax exemptions have been withdrawn for transportation of petroleum products, postal mail bags and household effects through rail or ship, as well as certain services provided by educational institutions and parking facilities.

On the brighter side, the negative list of services has been expanded to include vocational courses offered by State councils as well as testing activities related to agriculture. Tax exemption has been extended to transportation by road for agricultural produce including tea, coffee, sugar, fertilisers, newspapers, magazines and defence equipment.

Among all these, levy of service tax on transportation of petroleum products seems significant, as it would boost revenues and could, at the same time, prove inflationary.

The amnesty scheme introduced by the Government seems analogous to the VDIS scheme introduced about 15 years ago to encourage assessees to voluntarily deposit taxes, at the same time waiving the interest, penalty and criminal prosecution against them. This would certainly add to tax revenues and enhance the tax base.

Though the negative list was welcome, the manner in which it was brought about left a lot to be desired, largely because of the complexities in the rules accompanying it, making it difficult for a layman to follow.

It was expected that the rules would be simplified in the Budget to lend better clarity and certainty. Further, one expected an increase in the threshold exemption limit of Rs 10 lakh for service tax, as it was last revised in 2008. Any consequent loss in revenue could have been offset by the widening tax base.

However, none of this has happened and the parking lot attendant, instead of focusing on parking the next car, may be busy determining the place of provision of his services or the point unto which his tax liability would arise!

(Manish Mishra is Executive Director, Khaitan & Co.)

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