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Challenges before the Service Tax Administration in India


            Service tax administration in India has before it multi-dimensional challenges. Some of them are related to the very nature and growth of service sector in the economy and others relate to procedural aspects of the service tax collection.

            The growth of service sector at a high rate offers opportunities as well as challenges to bring under the tax net hitherto uncovered services. This offers tremendous revenue potential to the Government. It is expected that in due course Service Tax would reduce the tax burden on international trade (Customs duty) and domestic manufacturing sector (Excise duty). So a planned growth of service tax would be commensurate with the goals of economic liberalization and globalization. This process requires levy of taxes on new services without substantial rise in the rate or cost of collection.

            The proposed Goods and Service Tax is a part of the tax reforms that centre around evolving an efficient and harmonized consumption tax system in the country.  Presently, there are parallel systems of indirect taxation at the Central and State level.  The existing Service Tax System poses an imminent challenge, to reform its synergies, to eventually harmonize itself in the GST regime, as and when it is rolled out.  Successful integration of goods and service tax, would give India a world-class tax system and will bring in improved tax collection.  In a way, it will boost our economy and enable us to compete at the global front.  As a result, our system will eventually match the international standard in the sphere of indirect taxation.  It will also end the long standing distortions of differential treatments to the manufacturing and service sectors.  The effort to prepare for a smooth integration with the GST without any hardship to public is a big challenge, that need to be handled at the field as well policy level.

            No doubt, the twin goal of revenue maximization and introduction of the culture of voluntary tax compliance also throw up major challenge before the service tax administration in the country. The Department has taken several steps to upgrade the skill of the officers handling Service Tax and equip them with necessary expertise.  Training programmes on the issues related to Service Tax are regularly conducted for the Departmental officers.  A Manual for scrutiny of Service Tax Returns has been prepared by the CBEC to enable the Departmental officers to carry out the scrutiny of Service Tax returns in a methodical and systematic manner.  At the same time, the Govt. has also taken several facilitation measures for the tax payers. To assist them in the filing of Service Tax returns, Service Tax Returns Preparer (STRP) Scheme has been launched in 2009.  To enable them to understand the basic issues related to Service Tax, a booklet on Frequently Asked Questions (FAQ) on Service Tax has been published and the FAQ has also been put up on the Departmental website.  Open House sessions, Seminars etc. are also organized by the field formations to help the assesses and solve their problems.