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Service Tax Revenues to Pip Excise, Customs Contributions in FY15 Courtesy : The Economic Times

It’s finally happened. In keeping with services being the biggest component of the Indian economy, revenue from service tax will for the first time overtake that from excise and customs in 2014-15.

The levy was first introduced in 1994. The government has budgeted . 2.15 lakh crore from service tax in 2014-15, ahead of . 2.01 lakh crore from customs and . 2 lakh crore from central excise.

Three years back, in 2010-11, service tax was just about half the level of these other important indirect taxes that accounted for a nearly a third of total tax collections. Since then service tax has grown at a compounded average annual rate of 31% to cross . 2 lakh crore.

The spurt came in 2012-13 when the government shifted to taxation of services on the basis of a negative list. That is, all services were taxed unless specifically excluded. This cleared the confusion over whether a service was taxable or not. Service tax collections rose 36% in 2012-13.

Of course, customs and excise collections have also grown at a slower pace in recent years because of the slowdown in the economy. Lower imports have hit customs collections and subdued manufacturing has eroded excise collections.

Imports barely rose in 2012-13 and were down 7.81% in April-January from a year ago. Manufacturing is set to contract 0.2% in the current fiscal after muted 1.1% growth in the last financial year.

Services were first taxed two decades ago beginning with a 5% levy on telephones, non-life insurance and stock brokers. Currently services are taxed at 12%.

“Over the years, while attempts have been made to widen the base for domestic indirect taxes, the services sector has not been subjected to taxation. Yet this sector accounts for about 40% of our GDP and is showing strong growth,” Manmohan Singh, then finance minister, had said in his 1994-95 budget speech. The share of services in the economy has since increased to more than 60%. Its share in gross tax collection in 2014-15 will be 15.6%.

However, there some doubts about the strong 30.6% growth in service tax assumed in 2014-15.

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During my 37-year-old career with Income Tax department, I moved from place to place, post to post. For me, every posting was a challenge, and at the same time an opportunity to deliver.

After my retirement as Chairman of Central Board of Direct Taxes, I was invited by various institutions and NGOs to deliver talks on tax matters. While advising taxpayers across sectors, I noticed, our vast salaried class including armed and paramilitary forces, pensioners or senior citizens, NRIs, professionals and small business establishments need the right guidance. Most taxpayers do comply with their tax obligations fully. Yet, they are not somehow relaxed and are burdened with anxieties. A large number of taxpayers are not even aware that getting tax refund on time is a basic right.

In one such meeting, a middle-aged man quizzed me why could not I give tax advice 24X7. For a moment, I had no answer. He then added that I should give tax solutions online so that he does not need to come from a remote place to attend my lecture. I thanked him for his suggestion.

For a while I was restless. Already I had got myself enrolled as a Member of the Bar Council of Delhi and as an Advocate of Delhi High Court Bar Association, thanks to my law degree from the University of Allahabad. Yet, I was not sure how I could help the vast majority of taxpayers who somehow maintain a safe distance from the taxmen. I then tossed the idea of creating a tax think-tank with some of my former colleagues and highly spirited individuals. All of us immediately agreed on one count: millions of Indian taxpayers expect to access tailor-made tax research materials and seek guidance from those who have been parts of the tax machinery for decades.

That is how CTAR was born. So, be a part of our passionate journey to explain tax laws and rules in simpler words. Just drop us a few lines on any query related to direct and indirect tax or FEMA. We are at your assistance. We also look forward to hearing your experiences while dealing with the system.