General Budget 2015-16 - SERVICE TAX

General Budget 2015-16 - Changes in SERVICE TAX:

1. Change in Service Tax rates:

The service tax rate is being increased from 12% plus Education Cesses to 14%. The ‘Education Cess’ and ‘Secondary and Higher Education Cess’ shall be subsumed in the new service tax rate. The revised rate shall come into effect from a date to be notified

To further facilitate the ease of doing business, online central excise and service tax registration will be done in two working days. The assessees under these taxes will be allowed to issue digitally signed invoices and maintain electronic records. These measures will cut down lot of paper work and red tape. Time limit for taking CENVAT credit on inputs and input services is being increased from six months to one year as a measure of business facilitation.

Introduction of GST is eagerly awaited by Trade and Industry. To facilitate a smooth transition to levy of tax on services by both the Centre and the States, it is proposed to increase the present rate of service tax plus education cesses from 12.36% to a consolidated rate of 14%.

Penalty provisions in Customs, Central Excise & Service Tax are being rationalized to encourage compliance and early dispute resolution.

Central Excise/Service Tax assessees are being allowed to issue digitally signed invoices and maintain other records electronically.

2. Review of the Negative List :

The Negative List under service tax is being slightly pruned and certain other exemptions are being withdrawn to widen the tax base.

 1.Service tax to be levied on the service provided by way of access to amusement facility such as rides, bowling alleys, amusement arcades, water parks, theme parks, etc.

2) Service tax to be levied on service by way of admission to entertainment event of concerts, non-recognized sporting events, pageants, music concerts and award functions, if the amount charged for admission is more than Rs 500. Service by way of admission to exhibition of the cinematographic film, circus, dance, or theatrical performances including drama, ballets or recognized sporting events shall continue to be exempt.

 3) Service tax to be levied on service by way of carrying out any processes as job work for production or manufacture of alcoholic liquor for human consumption.

4) An enabling provision is being made to exclude all services provided by the Government or local authority to a business entity from the Negative List. Once this amendment is given effect to, all service provided by the Government to business entities, unless specifically exempt, shall become taxable

3. Review of General Exemptions :             

1) Exemption presently available on specified services of construction, repair of civil structures, etc. when provided to Government shall be restricted only to,

            a) a historical monument, archaeological site,   b) canal, dam or other irrigation work;    c) pipeline, conduit or plant for -  (i) water supply (ii) water treatment, or (iii) sewerage treatment or disposal.

2) Exemption to construction, erection, commissioning or installation of original works pertaining to an airport or port is being withdrawn.

3) Exemption to services provided by a performing artist in folk or classical art form of (i) music, or (ii) dance, or (iii) theater, will be limited only to such cases where amount charged is upto Rs 1,00,000 per performance (except brand ambassador).

 4) Exemption to transportation of ‘food stuff’ by rail, or vessels or road will be limited to transportation of food grains including rice and pulses, flours, milk and salt only. Transportation of agricultural produce is separately exempt which would continue.

5) Exemptions are being withdrawn on the following services: (a) services provided by a mutual fund agent to a mutual fund or assets management company; (b) distributor to a mutual fund or AMC; and (c) selling or marketing agent of lottery ticket to a distributor of lottery.

 6) Exemption is being withdrawn on the following services,- (a) Departmentally run public telephone (b) Guaranteed public telephone operating only local calls (c) Service by way of making telephone calls from free telephone at airport and hospital where no bill is issued

 7) Existing exemption notification for service provided by a commission agent located outside India to an exporter located in India is being rescinded, as this notification has become redundant in view of the amendments made in law in the previous budget, whereby services provided by such agents have been excluded from the tax net.

4. Relief Measures

1.)Services of pre-conditioning, pre-cooling, ripening, waxing, retail packing, labeling of fruits and vegetables are being exempted.

2) Life insurance service provided by way of Varishtha Pension Bima Yojna is being exempted.

3) Service provided by way of exhibition of movie by the exhibitor/ theatre owner to the distributor or association of persons consisting of exhibitor as one of it’s member is being exempted.

4) All ambulance services provided to patients are being exempted.

 5) Service provided by way of admission to a museum, zoo, national park, wild life sanctuary and a tiger reserve is being exempted.

 6) Transport of goods for export by road from the factory to a land customs station (LCS) is being exempted.

5. Changes in the Finance Act, 1994

1. A definition of the term “government” is being incorporated in the Act to resolve interpretational issues as regards the scope of this term in the context of the Negative List and service tax exemptions.

 2. To amend the definition of term “service” to specifically state the intention of legislature to levy service tax on: i. chit fund foremen by way of conducting a chit; and ii. distributor or selling agent of lottery, as appointed or authorized by the organizing state for promoting, marketing, distributing, selling, or assisting the state in any other way for organizing and conducting a lottery.

 3. It is being specifically prescribed in the Act that value of a taxable service shall include any reimbursable cost or expenditure incurred and charged by the service provider to make legal position clear and avoid disputes.

 4. Section 66F of the Act prescribes that unless otherwise specified, reference to a service shall not include reference to any input service used for providing such service. An illustration is being incorporated in this section to exemplify the scope of this provision.

6. Rationalization of abatement

 1. A uniform abatement is being prescribed for transport by rail, road and vessel to bring parity in these sectors. Service Tax shall be payable on 30% of the value of such service46 subject to a uniform condition of non-availment of Cenvat Credit on inputs, capital goods and input services. Presently, tax is payable on 30% of the value in case of rail transport, 25% in case of road transport and 40% in case of transport by vessels.

 2. The abatement for executive (business/first class) air travel, wherein the service element is higher, is being reduced from 60% to 40%. Consequently, service tax would be payable on 60% of the value of fare for business class.

3. Abatement is being withdrawn on chit fund service.

7. Service Tax Rules

1. In respect of any service provided under aggregator model, the aggregator is being made liable to pay service tax if the service is provided using the brand name of aggregator in any manner.

2. Consequent to the upward revision in Service Tax rate, the composition rate on specified services, namely, life insurance service, services of air travel agent, money changing service provided by banks or authorized dealers, and service provided by lottery distributor and selling agent, is proposed to be revised proportionately.

8. Reverse charge mechanism

1. Manpower supply and security services when provided by individual, HUF, partnership firm to a body corporate are being brought to full reverse charge as a simplification measure. Presently, these are taxed under partial reverse charge mechanism.

 2. Services provided by mutual fund agents, mutual fund distributors and lottery agents are being brought to under reverse charge consequent to withdrawal of exemption on such services.

9. The Cenvat Credit Rules,2004

Cenvat Credit Rules are being amended to allow credit of service tax paid under partial reverse charge by the service receiver without linking it to the payments of value of service to service provider as a trade facilitation measure.

Compensate states 100% on GST for first 3 years

The 14th Finance Commission has suggested that the Centre provide 100% compensation to states for the first three years for their revenue loss after implementation of the goods and services tax (GST) and set up a compensation fund.

The recommendations are expected to embolden the sta- tes to urge the Centre to rework its compensation formula and act as a hurdle in implementation of the country's most ambitious indirect tax reform.

"Given the scale of reform and apprehension of revenue uncertainty raised by the states, the revenue compensation should be for five years," the commission headed by former RBI governor Y V Reddy said. "It's suggested that 100% compensation be given to the states in the first, second and third years, 75% in the fourth year and 50% in the fifth and final years," it said.

The panel said the government should set up the compensation fund as states want such an entity be created constitutionally. "We recommend an autonomous and independent GST Compensation Fund through legislative action in a manner that it gives comfort to states limiting the period of operation appropriately," the panel said.

It said there were challenges and in the absence of clarity on the GST design and the final rate structure it's difficult to quantify compensation in case of revenue loss to states.




Courtesy: Times of India

Service tax mop-up may see robust growth in FY15

Service tax collections are tipped to be higher than those from two other indirect taxes - excise and Customs duties - for the first time in the next financial year.

The tertiary sector holds the key to growth in indirect tax collections over the next few years as revenue from excise and Customs is likely to remain muted until the economy revives. Aided by the Negative List for taxation of services, new penal provisions, and an amnesty scheme for defaulters, the revenue department is banking upon the service sector to drive future growth in tax receipts.

At current rates, service tax collections are projected to increase by 30.6 per cent to Rs 2,15,478 crore next year. Customs and excise duties, on the other hand, are projected to yield around Rs 2 lakh crore each to the exchequer, growing by 15 and 11.72 per cent, respectively.

WHAT LEADS TO RISE IN SERVICE TAX RECEIPTS
Negative list
Amnesty scheme
Arrest provisions
Services GDP
Cenvat credit
Service import rules

According to Budget documents, nominal GDP is projected to grow 13.4 per cent in 2014-15 and 11.9 per cent in 2013-14.

Services were first taxed barely 20 years ago, whereas customs duties date back to 1962 and excise to 1944. Including construction, services contribute about 60 per cent of India's GDP. The sector expanded by a higher rate than manufacturing and agriculture and so did tax collections from it. However, this is not the only factor that contributed to the 24.3 per cent growth in service tax collections this year, according to, revised estimates in the budget.

The Voluntary Compliance Encouragement Scheme (VCES), announced in Budget 2013-14 as a one-time opportunity for defaulters to pay up all their dues and escape penalty, added about Rs 4,000 crore to the government kitty. A total of 66,062 applications were received under the scheme and as many of these are first-time taxpayers, it widened the tax base and these assessees will the pay tax next year, too.

The last Budget also made non-payment of service tax above Rs 50 lakh a cognisable and non-bailable offence. This gave power to officials to arrest defaulters without requiring a warrant from court. The authorities have nabbed 28 executives in the last six months for non-payment of the tax.

The introduction of a Negative List in July 2012 also helped expand the tax base. Earlier, only 119 services were taxed, but now every service is taxable, barring the 17 mentioned in this list. People who were not paying service tax earlier are paying now and will continue to pay in subsequent years. The gains, however, may not be as high as seen in the first year.

"Services contribute the biggest chunk of GDP. We need to be tapping all of it. The real growth is in services and it will be there (in the future too), but the collections may not grow at that rate (as seen in the recent past) due to the economic slowdown,"

The finance ministry had originally projected a 36 per cent growth in service tax collections this year, but due to a slowing economy it fell short of target. Services, however, still performed better than excise and customs, where the revenue growth was barely 1.7 per cent and 5.8 per cent, respectively.

The another reason for service tax collection surpassing excise receipts was that many manufacturers were discharging their liability by setting off of the excise duty or service tax paid on inputs against the tax on the final product.

"After the introduction of Place of Provision of Services Rules, 2012, the liability to pay tax on import of certain services has risen in India,"

If the place of provision of service is in taxable territory, service tax will be payable even if payment is received in foreign exchange and the service receiver is located outside the taxable territory.

The target set for service tax collections for 2014-15 set by the finance ministry is slightly optimistic and the mop-up may not grow at the same pace in the future, but the growth will be more than excise. Telecommunications, insurance, works contract, renting of immovable property, business support, construction of residential complex, business auxiliary service, banking, and transport of goods by roads are some of the sectors contributing highly to service tax collections.

Indirect Taxes an overview

Indirect Taxes an overview 

       Indirect tax is levied on goods and services rather than on income or profits. It is most often thought as a tax that is shifted from one taxpayer to another, by way of an increase in the price of the good. Fuel, liquor and cigarette taxes are all considered examples of indirect taxes. The Central Board of Excise & Customs (CBEC)(Department of Revenue ,Ministry of Finance ,Govt Of India) is responsible for formulation of policy relating to levy and collection of Indirect taxes namely Customs, Central Excise and Service tax. The indirect tax system in India has undergone extensive reforms for more than two decades. India is still standing on the threshold of an opportunity to streamline its indirect tax regime in the country. The framework of Indirect taxes is presently complex not only for the trade but also for the government. The Indirect tax system in India has undergone extensive reforms for more than two decades.
Liberalisation of the Indian economy in 1992 forced the government to undertake indirect tax reforms so that the Indian industry can face international competition and economic growth can be accelerated. Peak rate of Customs duty was gradually reduced from 300 % to 10% .Excise duty reduced from peak of 220% to 16% .The Government’s revenue requirement was met by reduction in tax exemption ,introduction of service tax in 1994 and also significantly higher tax collection due to accelerated economic growth. Reduction in the tax rate also improved compliance and investment climate. Tax administration was improved and modernised .After achieving major success in central tax reforms and reaping its benefits in the form of higher economic growth and revenue expansion, it was realised that without undertaking tax reforms at the state level, the Indian economy will remain fragmented and the industry cannot derive significant gains. This led to the introduction of uniform VAT at state level in 2005 multi rate sales tax. It was a major step forward towards making India a one common economic market. But even after these reforms, it is still a highly fragmented and distortionary tax structure characterized by multiple tax rates, barriers to inter-state trade, and cascading of taxes. However, these reforms have succeeded in preparing the ground for the introduction of a comprehensive goods and services tax (GST).

Growth of Service Tax

Service tax is envisaged as the tax of the future. Well synchronized taxation on manufacturing, trade (domestic & international) and service without giving rise to cascading effect of taxation would be an ideal worth pursuing in the immediate future. This would bring in VAT in its truest sense, though the ultimate objection usher in the regime of Goods and Service Tax (GST).

            Continued growth in GDP accompanied by higher rate of growth in service sector promises new & wider avenues of taxation to the Government. If the tax on services reduces the degree of intensity of taxation on manufacturing and trade without forcing the Government to compromise on the revenue needs, then one of the basic objectives of taxing the service sector would be achieved.

                       Advanced economies of Western Europe, North America and Far East have share of service sector in their GDP ranging from 60% to 80%. The growth in absolute quantum of GDP and proportion of Service-sector in GDP holds promise for larger revenue generation without increasing the existing level of taxation

Future Course of Action

The following items of works have to be attended to urgently to improve the administration of Service Tax in the country.

1.     Service Tax collection Target (Budget estimate) of Rs.180141 crores for F.Y. 2013-14 to be exceeded.

2.      Intensify the field survey operations to ensure that all taxable service assessees are brought into the tax net and Service Tax due from them are collected without hitch.

3.      Recalcitrant/ habitual evaders of Service Tax have to be booked for appropriate action under the law. There could be no leniency in this regard.

4.         Effective use of Audit and Anti-evasion as tools for ensuring the compliance on the part of the assessee and curbing the instances of irregularities and tax evasion.  With the launch of ACES greater emphasis will be on training the staff in computer skills necessary to carry out effective, systematic and result oriented analysis of data available in the system to achieve greater result.   

5.      Effectively implement an Electronic Tax Administration (ETA) system for service tax so that service tax could be administered as a pioneer e-tax of the country. The Directorate General of Systems & Data Management has developed a web based software named as ‘AUTOMATION OF CENTRAL EXCISE AND SERVICE TAX’ (ACES) which automates various processes of Central Excise & Service Tax for Assesses and Department and gives complete end to end solution. This web based software is available at ‘www.aces.gov.in’

6.      Concentrate on liquidation of Service Tax arrears and issue necessary clarifications to the field officers so that arrears linked up with disputed interpretations of the provisions of the law could be easily resolved.

7.      Attend to all major court cases relating to Service Tax law for early decision.

8.    Deploy adequate staff to attend to the service tax work and provide infrastructure and conveyance to implement service tax law effectively.

GST -The need of the hour

Goods and Services are the two terminal points in any trade and commerce. Though they run parallel and are mutually exclusive, many a times, they blend at a point where they are thoroughly fused together! For example, if activities like teaching are pure services where there would be no involvement of goods at all would be one terminal point, the sale of commodities which are pure goods and where there would be no provision of services, would be the other terminal point. But in cases like construction of a building etc, there will be both, such as services (construction) as well as goods (cement, steel, etc). In such cases, the goods as well as the services would have a meeting point, so intertwined, where the services as well as the goods component cannot be distinguished or bifurcated. At present, having Excise/Customs duties for the commodities and Service tax for the services, the Government has formulated separate mechanisms to deal them separately. It would be relatively easy to tax the terminal points like the pure goods under Excise and pure services under Service tax. But levying tax on the sectors like ready-made garments etc, where both the goods and services are equally and inseparably present, taxing them has always been Herculean task! VAT IN INDIA The foundation stone to the GST was laid by the then Finance minister Mr. V.P. Singh, whereby, he introduced the first comprehensive and milestone set – off scheme under the Central Excise law, called MODVAT (Modified Value Added Tax) scheme in the year 1986. This MODVAT scheme neutralized the cascading effect of tax – on – tax by giving the credit of the excise duty paid on the inputs to be set- off against the duty payable on such final products. This MODVAT scheme, which was introduced to the inputs, raw materials and consumables which were used directly or indirectly used in the manufacture of the final products, was extended to the capital goods in the year 1994. With few restrictions like 50% availment in the first year and the balance in any subsequent years and no depreciation claim on the credit amount, this was the next beneficial extension of the MODVAT scheme. The year 1994 also saw a radical change in the indirect tax domain with the introduction of an indirect tax on services called the “Service Tax” through the Finance Act, 1994. Though introduced to three services like Telephones, Non-Life Insurances and Stock broking in the year 1994, this tax has multiplied like virus and today has near to 200 services in the net. With the tax rate @ 5%, the service tax lived its initial years without the benefit of the set – off schemes. Further, the Central Board of Excise and Customs (CBEC) had also issued certain clarifications in certain services, whereby, it had been clarified that there was no need to pay any service tax by the sub – contractors of the main service providers, if the main service provider is paying the service tax. Hence, both the moderate rate of tax as well as the non – requirement for the sub- contractors to pay any tax, did not either hurt the service tax assesses to cry for any credit scheme nor the Government to think of such a scheme for service tax. Subsequently, with the increase in the service tax rate from 5% to 8% and then to 10%, the service industry started feeling the pinch. Thus, in the year 2002, the Government introduced a “limited edition” of service tax credit and extended it in the year 2003 to all taxable services. The year 2004 has to be hailed as another significant year in Indirect tax administration as this year saw the introduction of “cross-sectoral” credit through the Cenvat Credit Rules, 2004 (CCR). The scheme rechristened as CENVAT credit is a milestone, whereby, the credit of the excise duty/countervailing duty paid on the inputs/capital goods and the service tax paid on the input services were allowed to be used for the payment of excise duty payable on the final products manufactured as well as for the service tax payable on the output services provided. Year 2005 saw the Value added Tax (VAT) being introduced in many States in India, whereby, the set-off scheme was introduced in the State administered indirect tax – Sales Tax! Now with the sound and solid groundwork, India is all set to launch the GST – the TAXATIONEXT! GST – ECO SYSTEM! To me, there are four direct players in this GST game, namely, the Central Government, the State Government , the Trade and last but not the least, the Consultants. Now we shall see the benefits to all of them, sequentially. Firstly, the Central Government. Today, the Centre levies indirect taxes on goods and services, namely the Central Excise duties on manufacture of goods, the Service tax on provision services and the Customs duties on import of goods. In the goods sector, the Centre is now empowered to levy taxes only upto the stage of manufacture. Today, the Centre is not able to levy a tax on the trading of the goods as the Centre is not empowered to tax the SALE of goods but only empowered to tax “MANUFACTURE” as per Entry 84 of the Union List. In other words, the huge value addition in the value chain of the commodities, from the stage of manufacture till the stage of retail trade, is out of the levy of Central Excise. Only the States are today empowered to tax the goods on their SALE upto the retail trade. By this GST, the Centre would be empowered to tax the commodities till the retail point and increase its tax base multifold. An illustration below, keeping a notional GST rate of 10%, would make the proposition lucid and clear. Stage of Supply chain Purchase value of input Value addition. Value of supply made to next stage Rate of GST GST on output Input