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Revenue from service tax to pip custom and excise in FY15
February, 19th 2014

It's finally happened. In keeping with services being the biggest component of the Indian economy, revenue from service tax will for the first time overtake that from excise and customs in 2014-15.

The levy was first introduced in 1994. The government has budgeted Rs 2.15 lakh crore from service tax in 2014-15, ahead of Rs 2.01 lakh crore from customs and Rs 2 lakh crore from central excise.

Three years back, in 2010-11, service tax was just about half the level of these other important indirect taxes that accounted for a nearly a third of total tax collections. Since then service tax has grown at a compounded average annual rate of 31% to cross Rs 2 lakh crore.

The spurt came in 2012-13 when the government shifted to taxation of services on the basis of a negative list. That is, all services were taxed unless specifically excluded. This cleared the confusion over whether a service was taxable or not. Service tax collections rose 36% in 2012-13.

Of course, customs and excise collections have also grown at a slower pace in recent years because of the slowdown in the economy. Lower imports have hit customs collections and subdued manufacturing has eroded excise collections.

Imports barely rose in 2012-13 and were down 7.81% in April-January from a year ago. Manufacturing is set to contract 0.2% in the current fiscal after muted 1.1% growth in the last financial year.

Services were first taxed two decades ago beginning with a 5% levy on telephones, non-life insurance and stock brokers. Currently services are taxed at 12%.

"Over the years, while attempts have been made to widen the base for domestic indirect taxes, the services sector has not been subjected to taxation.

Yet this sector accounts for about 40% of our GDP and is showing strong growth," Manmohan Singh, then finance minister, had said in his 1994-95 budget speech.

The share of services in the economy has since increased to more than 60%. Its share in gross tax collection in 2014-15 will be 15.6%.

However, there some doubts about the strong 30.6% growth in service tax assumed in 2014-15

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