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Service tax: life insurance companies, ad agencies add cheer to collections
August, 27th 2015

Life insurance companies and advertising agencies along with recovery agents have boosted service tax collections. Others such as real estate and air travel agencies have registered negative or below average growth in tax collection.

According to the Central Board of Excise and Customs (CBEC), the recovery agent segment topped the list with over 250 per cent growth in collections during April-July, followed by life insurance services, promotion of brands of goods, services etc, advertising agencies and survey & exploration of minerals. Rising bad debts (non-performing assets or NPAs) seem to have increased the work of recovery agents which, in turn, has propped up service tax collection.

Services showing below average growth include dredging and residential construction, which showed negative growth during April-July quarter.

Two other services related to real estate registered single digit growth, while the surprising element in this list is air travel agencies, which showed just one per cent growth.

Interestingly, air travel in April-July grew both domestically and internationally. While international travel saw double digit growth, the number of domestic air passenger grew by over 21 per cent. An air travel agent has to pay service tax either on the fees paid by the passenger or commission paid by the airline. It appears that the trend of direct online booking has affected the income of travel agents which, in turn, has lowered the service tax collection.

The services sector, which contributes over 57 per cent to the GDP, is an important component of the overall tax collection. Its share in the Budget estimate for indirect taxes collection (customs, central excise and service tax) is over 32 per cent. Even in gross collections of both direct and indirect taxes, service tax is estimated to contribute around 14.5 per cent.

The government has set a target of 24.8 per cent for growth in service tax collection for this fiscal. However, the average growth so far is around 16 per cent.

Revenue Secretary Shaktikanta Das, while addressing a conference on Monday, had asked officials to do a sector-wise analysis to find out why service taxes were not showing higher growth.

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