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Business sentiment improves, service tax collection inches up
February, 02nd 2015

Some good news for Prime Minister Narendra Modi with early revenue figures indicating an uplift in business sentiment. Nine months of the NDA government has seen the highest growth in manpower recruitment and supply services, besides those providing consultancy and engineering knowhow. Airports too have been among the highest contributors to the tax kitty.

During the April-December period of 2014-15, service tax collection from all services was to the tune of Rs 1.20 lakh crore compared to Rs 1.10 lakh crore last year. Interestingly, the growth in contribution from business support services and manpower recruitment agencies have been highest at 24% and 23% respectively.

READ ALSO: World Bank projects 6.4% economic growth in India in 2015

However, service tax authorities say the contribution of manpower supply agencies may not totally reflect the actual increase in direct employment. A lot of big multi-national companies (MNCs) and Indian corporate houses are shifting to contract employment where they can hire and fire at will. Hiring through contractors, even for specialized skilled services, is the new trend to circumvent the stringent labour laws in the country.

"Many of the foreign MNCs and some big Indian information technology companies are hiring skilled workers in bulk, say 500 to 700, through manpower supply agencies. These employees are withdrawn by contractor on a single notice with no obligation to the MNC," said a senior tax official.

READ ALSO: Economy set to take off for 8-9% growth, Arun Jaitley says

Service tax collected from passengers embarking on domestic and international journeys showed growth of 20% up to December, compared to the same period in the previous fiscal year. This could also mean more money in people's pocket or an improvement in the country's business environment.

This is supported by more usage of credit and debit cards with tax collected on these services registering a growth of 22%.

Sectors not doing well include the insurance industry which collected Rs 3,072 crore up to December compared to Rs 3,481 crore in the previous fiscal. Even general insurance services had a mere 3% growth with collection of Rs 6,379 crore compared to Rs 6,192 crore in the same period last year.

Growth in the real estate segment too remains in the negative zone with service tax collection at Rs 2,694 crore during April-December, down 12% from last year's Rs 3,054 crore. This is despite the fact that the new government had allowed additional concessions in income tax.

The collection from security and detective agencies was Rs 2,076 crore, more than 17% compared to last year's Rs 1,770 crore. These detective and security agencies have contributed more to the Modi government than credit/debit card services and almost as much as the service tax collection on domestic and international journeys.

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