If the applications for availing of the government’s service tax amnesty scheme are any indication, companies involved in construction and works contracts might well be among the biggest evaders of service tax.
According to preliminary information with the finance ministry, these two sectors account for the bulk of the application; transportation and supply of manpower follow.
The Service Tax Voluntary Compliance Encouragement Scheme, announced in Budget 2013-14, had drawn 3,681 applications declaring tax to the tune Rs 897 crore (Rs 8.97 billion) as on September 30.
Of this, tax of Rs 58 crore (Rs 580 million) had already been paid, while the rest was to be paid by December 31, when the scheme would close.
The scheme is likely to bring to the exchequer about Rs 1,500 crore (Rs 15 billion) this year -- 50 per cent more than the initial internal estimate of Rs 1,000 crore (Rs 10 billion). A finance ministry official said some of these applications that didn’t meet the eligibility criteria might be rejected. But the exchequer might still get about Rs 1,500 crore (Rs 15 billion).
The worry, however, is that many taxpayers have stopped making regular payments and are applying under the scheme to avoid interest, penalty and prosecution on evasions since 2007.
Moreover, under VCES, service tax defaulters can pay half their dues by December 2013 and the rest by June 2014.
Generally, the service tax collected has to be paid to the government in a month.
Payment defaults in tax collections exceeding Rs 50 lakh (Rs 5 million) become non-bailable offence only after six months from the due date.
The underreporting of services would be even higher.
Services tax is levied at 12 per cent and at that rate the undisclosed amount would be Rs 7,475 crore (Rs 74.75 billion).
However, as abatement is allowed on many services, the value of total business that goes unreported would be higher.
In case of flats, abatement is 70 per cent and the rate varies in other categories of construction, works contract, etc.
Now, assuming an abatement rate of 70 per cent, this would mean services worth Rs 24,917 crore (Rs 249.17 billion) were not reported.
“The trend emerging as of now is that a lot of taxpayers from the construction and works contracts are applying for the scheme,” said another finance ministry official.
An addition of Rs 1,500 crore would be a major boost to service tax collections this year, pegged at Rs 1,80,141 crore (Rs 1,801.41 billion); and, declaration of service tax dues could add only a bit to the country’s GDP.
The underreporting of business worth Rs 24,917 crore (Rs 249.17 billion) would account for only 0.24 per cent of India’s GDP in 2012-13.
However, the exercise would bring new taxpayers to the government and add to GDP in subsequent years.
At present, the services sector contributes about 65 per cent to GDP, while service tax constitutes less than a third of total indirect tax collections.
At present, of the 1.7 million registered assesses under service tax, only 700,00 are filing returns; some are exempted and some have turnovers of less than Rs 10 lakh (Rs 1 million).
According to government estimates, service tax evaders deprived the exchequer of over Rs 9,872 crore during April-December 2012.
During this period, 4,133 cases of service tax defaults were detected; over Rs 1,969 crore (Rs 19.69 billion) has been realised from these defaulters.
A defaulter can avail of the one-time scheme on the condition that he files a truthful declaration of service tax dues since October 2007 and makes the payment in one or two instalments.
This is for the first time that an amnesty scheme has been announced for service tax evaders.
A Voluntary disclosure of income scheme had been launched by the finance ministry in 1997 and it had helped increase income-tax collections dramatically that year.
- 3,681: Applications received*
- Rs 897 crore: Tax declared*
- Rs 58 crore: Tax already paid*
- Rs 1,500 crore: Total tax expected
- Deadline: December 31, 2013
- Key applicants: Construction, works contracts
- Dues to be paid: 50% by December and the rest by June 2014
- Benefits: No interest, penalty and prosecution
- Period covered: Since October 2007
- 1.7 million: Registered service taxpayers at present
- 700,000: Return filers
- 65%: Service sector’s contribution to GDP
- 33%: Service tax contribution to indirect taxes
- Rs 1,32,697 crore: Service tax revenue in 2012-13
- Rs 1,80,141 crore: Target for 2013-14