In the wake of service tax doing better and garnering more revenues to the exchequer, the government is planning to give more importance to its collection from small towns and cities.

At present more than half of the service tax collected in the country, comes from Mumbai and Delhi. Last month, the authorities collected a little over Rs 18,000 crore as service tax, of which, more than Rs 9,000 crore came from Delhi and Mumbai.

“Since this segment is doing well, we want to broaden the net for more collection,” a Finance Ministry official said.

Service tax is levied on service providers on certain service transactions. The service providers collect it from the consumer. Categorised under indirect tax, it came into existence under the Finance Act, 1994.

The effective service tax rate will now be 15% after imposition of the krishi kalian cess on all taxable services from June 1. The rates of service tax have increased at the fastest pace since last year. Prior to 2015, the service tax rate in the country was 12.36%. With the rollout of Goods and Services Tax, the rate of service tax is expected to go up further.
The government will now concentrate on cities like Jaipur, Lucknow, Bhopal, Chandigarh and Bhubaneswar, where business is done in volumes, but service tax collection is not as expected.

Besides, the government is also trying to broaden the base of the service tax. Currently, banking and financial services, telecommunications and general insurance fetch the maximum amount of service tax.

“The plan is to garner equal amount from other taxable services too,” the official said.
Whereas, other direct or indirect tax collection often fall short of the target, service tax has always been met and sometimes exceeded.

Service tax collections have exceeded the target six times in the last 10 years. While customs duty collections have outperformed only four times, excise duty collections have never met the target in the past 10 years.