It's time for the government to whittle down the list of services in the tax net
“In any democracy, people elect a government in the expectation of good governance that would make life better for them, not worse. The service tax imposed by Union Finance Minister P. Chidambaram on all billing at air-conditioned restaurants across the country is utterly perverse, regressive and bizarre. In a land where temperatures and humidity levels shoot up to unbearable levels, why should a couple of idlis and a cup of coffee in some comfort cost more than they already do? Any way you look at it, it lacks reason, rationale and justification….”
That was one post-Budget cry of anguish from a tormented taxpayer that the Finance Minister chose to ignore. One can almost visualise Mr. Chidambaram chuckling to himself at the thought of any taxpayer expecting a Finance Minister or his taxes to be reasonable or rational. Give Mr. Chidambaram a moment and he will even come up with yet another of his favourite quips from the Tamil poet-philosopher Thiruvalluvar.
But then, yes, some taxes are more unfair and more unreasonable than others and by that yardstick there are few that seem to match “service tax”, which entered it 20th year last month. Unlike good old income tax or wealth tax, for instance, which are payable only if you have some income or wealth, service tax is a levy on expenditure and is applicable to one and all. You pay service tax if you avail of anything the government deems a “service” no matter what it is and who the service provider is. If that sounds arbitrary, so it is.
No less arbitrary is the choice of taxable “services”. Virtually any activity you undertake after getting out of bed in the morning — starting with making the day’s first phone call — is liable to fall in the category of taxable services. From courier services to Internet cafes, advertising, banking, beauty parlours, drycleaners, photography, air travel, rail travel, goods transport, cargo-handling, health facilities, forward contracts, shamianas and pandals, public relations, business exhibitions, credit cards, debit cards, information technology, copyright, legal consultancy, plastic surgery… the sky is the limit.
No wonder the ghost of service tax keeps popping up every time you get your mobile bill, broadband bill, hotel bill, gas bill or club bill… If some daily interactions have somehow escaped the service tax net, it is most likely the thought never occurred to the burra sahibs of the Finance Ministry.
So luckily, no tax so far on laughing at a joke, watching a cartoon, solving a crossword puzzle, crossing a road, jogging in the park, changing your Internet password or taking a lift to your 13th-floor office. Quoting Thiruvalluvar would have been taxed by now if only Mr. Chidambaram didn’t risk running up a huge bill.
Yet, you can’t accuse the Ministry’s burra sahibs of lacking in imagination. On the contrary, they have been on an overdrive all along. So much so that from just three plain services picked up quietly for taxation for the first time — telephone, general insurance, stock brokerage — by the then Finance Minister Manmohan Singh in his 1994-95 Budget; yes, he it was who started it all! — the arsenal grew so much over time that the government almost lost count of the taxable services.
So, time for another masterstroke: barring a small “negative list” of services not covered by the tax net, everything else attracts service tax now.
Besides the increasing number of taxable services, the rates of levy too have been shooting up: from 5% initially to 10% and now a stiff 12.36% including a 2% “education cess” and a 1% “secondary and higher education cess”. The golden hen that Dr. Manmohan Singh fathered with his uncanny foresight two decades ago has not stopped laying golden eggs.
Ironically, mention of the golden hen also brings to mind the tragic note on which the age-old fable came to an end. And just as the lucky farmer with the golden hen got so greedy that he decided one fine day to altogether kill it in the hope of scooping up all the golden eggs at one go rather than be content with one a day, is the government also not betraying symptoms of limitless greed and avarice?
Aren’t prudence and good sense being thrown to the winds in inventing and taxing more and more “services”, justified or not, as long as the big bucks keep rolling in to finance populist programmes and boost the ruling establishment’s prospects in elections?
Even taxpayers who believe in paying up their taxes sincerely and honestly find the idea of service tax hard to swallow because of its overwhelming pervasiveness and arbitrariness, adding unduly to the cumulative burden of all the taxes levied by the Centre and the States: sales tax, entertainment tax, gift tax, property tax, water tax, electricity tax, luxury tax, VAT and all that after you’ve coughed up your income tax, cess and surcharge.
There seems to be no stopping this runaway taxation because there is no resistance from taxpayers, no powerful public opinion lobbies to question unfair levies, and no crusading parliamentarians taking up public interest matters. With no questions asked, the party goes on.
Inevitably, the spectacular growth of service tax revenue from a little over Rs.410 crore 20 years ago to thousands of crores now — Rs.180,000 crore according to the latest 2013-14 government estimates — has also seen a surge in tax evasion, necessitating a much-trumpeted amnesty offer. The Service Tax Voluntary Compliance Encouragement Scheme, 2013, is an open invitation to defaulters to disclose their service tax liabilities dating back five years and pay up the dues to escape penalty and prosecution. It is work in progress. But by all indications so far it doesn’t promise much.
In all seriousness, a better bet will be to target the root cause of the problem: high tax, high evasion. Instead of knee-jerk amnesty offers that have hardly worked in the case of other taxes over the years, it is time for the government to take a fresh look at the entire gamut of taxable services, drop the bogus “services” from the net, and cut down the tax rate back to 5%. Lower tax will ensure greater compliance and higher revenue. All this needs to be done right away.
Yes, don’t push the golden hen too much and kill the taxpayer, half-dead and already paying up all those back-breaking taxes.
(The author is a former News Editor of The Hindu.)