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Service tax collections to grow 20%
March, 04th 2009

Despite a slowdown in business process outsourcing, allied construction activities and stock markets, service tax collections from Mumbai commissionerate are expected to clock over 20% growth at Rs 22,000 crore in the current fiscal (FY09).

The growth, according to a highly-placed official from the commissionerate, is attributable to increased awareness among service providers of their liability to pay service tax and vigorous audits
and preventive activities undertaken by audit parties. "An increased number of providers have been making inquiries of whether or not they fall in the list of 108 service providers liable to pay tax," said the official.

"Audit parties have also been contacting service providers to find out whether they have paid the tax as part of intensified audit and preventive activities. This has led to expectations of 22% growth in service tax collections by the commissionerate."

In this fiscal alone, the official said, the commissionerate has recovered up to Rs 300 crore from providers who had not paid the tax on the grounds that they were unaware of being liable to pay tax.

The Mumbai commissionerate, which includes the area of Mumbai and Thane district, contributes around 30% to the overall service tax kitty. Service tax collection from Mumbai was Rs 18,000 crore in FY08. The over 20% growth expected in the current fiscal is, however, way below the estimated Rs 25,000 crore that was set when the then finance minister P Chidambaram had announced the FY09 budget.

The shortfall can be attributed to a slowdown in construction and BPO activities, the major contributors of service tax, following a slump in demand and cancellation of orders.

The official also said that despite a reduction of 2 percentage points in service tax to 10%, the commissionerate had stepped up due diligence to ensure that service providers were paying the tax they had collected from customers who availed of their services.

"There are certain segments of providers who are prone to default. Some, such as contractors, architect service providers and transporters collect the service tax and dont pass this on to the government. We have stepped up due diligence to ensure that such providers do not escape the tax net."

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