Indirect taxes, mainly comprising customs and central excise duties, constitute important source of revenue for the central government. The share of indirect taxes is about 70 per cent in the total tax revenue of the government. The relative convenience of collecting them could be the most important contributory factor. Reason: these taxes are hidden in the prices of goods and are not perceived as direct taxes.

Quite often, the impact of change in the tax rate is not clearly discernible. Also, the incidence of tax is normally passed on. All these attributes tend to contribute to lesser resistance against indirect taxes.

On the other hand, a direct tax like income tax pinches the tax payer directly. This results in much greater temptation of avoidance and evasion.Collection of revenue through direct taxes poses a still greater problem for developing countries, which are afflicted with a wide disparity of income. Most transactions are based on informal modes of payment and receipt of money. Traditionally, a vast majority of small traders and shopkeepers maintain no proper accounts. Above all, there is a strong psychological factor. At the first attempt there is always a tendency to evade.For all these reasons the share of indirect taxes would continue to be significant for many years to come. However, indirect taxes cannot yield adequate revenue on a continuing basis unless the tax base is widened. All the more, when the excise duty rates are gradually declining. It is thus imperative to introduce new taxes into the tax system.Hence the justification for introduction of service tax. Initially, service tax was introduced on three services - telephones, non-life insurance and brokerage.

The rate of tax was kept at a low of five per cent. Subsequently, in 1996, three more services, namely, courier services, advertising services and paging were added to the tax net. In the 1997 budget a few more additional services have been introduced which include tax on services provided by customs house agents, steamer agents, manpower recruitment agencies, consulting engineers, travel agents, C&F agents, outdoor caterers, mandap keepers, etc.The experience of service tax has brought to focus some interesting issues.

Most important, the conceptual confusion. Moreover, the incidence of excise duty, sales tax and other local taxes, wherever applicable, is also borne on the goods and equipment purchased by them. The logic of charging another tax is therefore not clear to many. All these concerns need to be answered logically.

Economists believe that there is no distinction in the consumption of goods or services. Both satisfy the needs of human beings. From economic point of view, there is no logic to charge tax on consumption of goods alone. In fact, taxing goods alone is distortionary; it distorts the choice of consumption between goods and services. That is why, in many countries, goods and services are not only treated alike but also charged at the same rate of tax. To be sure, this is also the only way to design an elastic and self-sustaining tax system which can generate adequate resources without the need of introducing much "discretionary" changes every year. Significantly, in India, service sector contributes to more than 40 per cent in the GDP.As for the manner of collection, in most countries service tax is collected as a value-added tax, that is, as an indirect tax. Indirect, because the incidence of tax is often passed on to the person receiving the service, In the Indian context, this would help integrating the excise with service tax if value-added tax is introduced in future.

Nevertheless, there seem to be many fears about the administration and collection of service tax by excise authorities. Apprehensions about the rules, regulations and perhaps the very psychological factor in dealing with excise officials. "We cannot maintain accounts like manufacturers," is what is vociferously argued. Besides, there is fear of harassment by the excise officials.These contentions require some careful analysis. The legislature has authorised the excise department to administer the service tax. That is because excise and customs department also administers other indirect taxes. But is it true that the law and procedures relating to service tax are as rigorous as for excise? Consider the following and, believe me, they are bare facts.

* Excise duty is paid on the goods before their clearance from the factory or warehouse. The duty is to be paid irrespective of whether the excise duty has been received from the buyer or not. Service tax is not to be paid on each transaction basis but on a monthly basis. Furthermore, it can be paid by the 15th of the month preceding in which the service has been rendered.

* An assessee of excise has to maintain a current account with the excise department. There is no such requirement in respect of service tax.

* Excise duty is generally computed on the normal price of goods. This is derived from the actual price by applying complicated valuation provisions. No such concept is applicable to service tax. It is payable on the actual amount charged in an individual case, subject to rebate allowed, if any.

* Service tax, if not collected in the month in which the service was rendered, can be paid within 75 days of the month. No such relaxation is applicable in the case of excise duties.

* The law and procedures of excise are comparatively difficult. They involve fairly goods knowledge for classification of goods, determination of rate of duty, interpretation of exemption notifications and maintenance of accounts on day to day basis.

The rules are far too many, at times beyond the comprehension of the assessee. The same is not the case with service tax. The provisions are simple, there is no classification problem. It is easy to determine the tax liability. Returns prescribed are extremely simple.n Self-assessment of excise duty is subjected to selective audit. For this, records and returns are scrutinised with reference to classification of goods, rate of duty, exemption notifications, valuation provisions, etc. There is no such stricter requirement in the case of service tax.n Disputes about interpretation of law and applicability of concessions arise in excise duties. Service tax is virtually free from such disputes, either in nature or dimension.n In excise the records are statutory and sophisticated. Not so for service tax.Besides, we should not forget the most striking feature of service tax - collection of tax through voluntary compliance. Perhaps in case of no other tax is voluntary compliance so heavily relied upon. Has anyone heard of any serious cases of harassment or raid on any service tax assessee?That said, there is a need to consciously dispel the apprehensions and fears. To some extent, there is a need for a change in the mindset of excise officials. They should realise that assessees are the real "collectors" of tax revenue. An honest taxpayer must not have any apprehension or fear whatsoever. Whether it is really so, is for the assessees to judge and not the excise officials themselves. The department will also do well in organising seminars and educate the service taxpayers about the legal provisions, their obligations, rights and liabilities. If service tax is to grow at a faster rate, the phobia of excise must not bind the assessees.Service tax is the tax of the future. It is true that those who provide the service have to incur some expenditure, both in terms of money and time, to comply with the provisions of law. The compliance cost is a psychological burden. But, in the larger public interest, it should be seen as an act of service to the nation rather than a burden.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.