The government has accepted almost all applications seeking to pay service tax arrears that have been submitted thus far, with just 1% of them having been rejected.

Of a total 17 lakh registered service taxpayers, only seven lakh have been paying the levy, according to the finance ministry. The Voluntary Compliance Encouragement Scheme (VCES)is aimed at encouraging those who haven't done so to come forward and pay up.

"We are asking to pay tax from 2007 to 2012 and we are giving up interest on this levy,"finance minister P Chidambaram said recently in Mumbai. "The government is actually givingup legitimate revenue and I don't think there could be a more generous offer than this."

The scheme is along the lines of 1997 Chidambaram's Voluntary Disclosure of Income Scheme (VDIS) that was aimed getting people to pay tax on black money.
The revenue department has so far received 6,409 applications, of which 3,085 have been accepted, the minister said last week. Only 89 have been rejected while 3,235 cases are waiting to be processed, Chidambaram said.

"I have instructed the department to accept as many applications as possible and make it more accommodative rather then going behind people," said the minister, who has a service tax collection target of around Rs 1.80 lakh crore in the current fiscal year.

"The scheme will be successful only if the department changes its approach towards assessees," said Sachin Menon, partner and national head, indirect tax and regulatory services at KPMG. "People are not aware of the consequences and once they come to know about it, there will be surge in applications for coming out clean."

The tax is levied on all services except those services in a negative list. The current rate is 12.36% on gross value of the service. "It appears that the government is willing to collect as much revenue as possible and for that interest has been waived too," which is very rare, said Pritam Mahure of Pune-based tax advisory firm Lawgical Consultant. "People who have already paid entire applicable service tax may not benefit from the scheme, but people who have not paid the applicable service tax, this is one opportunity where they can pay service tax and come clean.