R. Saravanan et. al., International Journal o f Research in Management, Econo mics and Co mmerce, ISSN 2250-057X, Impact Factor: 6.384, Vo lu me 06 Issue 08, August 2016, Page 31 -35

An Analysis of Service Tax Revenue of India R. Saravanan1, S. Ramkumar2, and D. Gopinathan3 1

(Lecturer in PG Department of Commerce with CA, Syed Hameedha Arts and Science College, Kilakarai – 623806, Tamilnadu, India) 2 (Research Scholar, PG & Research Department of Co mmerce, N.M.S.S.Vellaichamy Nadar College, Madurai – 625019, Tamilnadu, India) 3 (IT & Soft Skill Trainer, ICT Academy of Tamilnadu, India) Abstract: India being a welfare state is striving to fulfill the obligations within the limited resources b y using the direct and indirect taxes as primary sources of revenue. Service tax is one of major tax under the category of indirect tax. The study is to analysis the progressive journey of service tax revenue in India. The secondary data sources have been used. The secondary data relating to the period of eight years (from 2006 –07 to 2013–14) have been collected from various published reports like Indian public finance statistics, economic surveys and budget documents. Service tax revenue is higher than the growth rate of revenue generated from the central excise and customs. It indicates that the service tax is progressing faster in terms of revenue generation than the central excise and customs within short span of time. For the analysis of data simple techniques like percentage, simple ranking method and growth rate have been used. It is express that the service sector takes dominant position in growing economy but the tax contributed by service sector towards nation is very small while compared with other taxes. Keywords: Service, Service Tax, GDP and Revenue generation

I. INTRODUCTION Govern ment has to play an important role in all round development of society in the modern era. It has not only to perform its traditional functions like defense, maintenan ce of law and order but also to undertake welfare and development activities such as health, education, sanitation, rural development, water supply, infrastructure development etc. It has also to pay for its own ad min istration. All these functions require huge public finance. Taxes constitute the main resource of public finance whereby government raises revenue for public spending. Taxes have been broadly categorized into direct and ind irect taxes. Service tax is one of major tax under the category of indirect tax. Contribution by the service sector to the Gross Domestic Product is increasing over the years. It levied on specified services called “Taxable Services”. The major objective behind charging service tax is to reduce the degree of intensity of taxa tion on manufacturing and trade without forcing the Government to compro mise on the revenue needs. The aim of the Govern ment is to increase gradually the list of taxable services until most of the services covered under the tax net. For levying service tax, the value of any taxable service should be the gross amount charged by the service provider for service rendered by him. Thus, it levied on the transaction of certain services, which have specified by the Central Govern ment under the Finance Act, 1994 fro m time to time. There is no any separate Act for Service tax like Central Excise Act 1944.Serv ice tax was collected by service provider from service receiver. It has to be paid by the service provider.

II. REVIEW OF LITERATURE Rao (2005) opined that the Indian tax system was characterized by a high dependence on indirect taxes, low average effective tax rates, high marginal effective tax rates and large tax induced distortions on investment and financing decisions and therefore reforms should be aimed at improving fiscal consolidations, lowering the marginal tax burden and reducing tax induced distortions. M.Govinda Rao and R. Kavitha Rao (2005) made an analysis of Indian tax system. The study reviewed the evolution of the tax system and its reform over the years and analyzed its efficiency and equity implications. The impact of historical and institutional factors in shaping India’s tax policy was studied. Alternate models of tax system reform were presented with a view to identifying the best practice app roach followed in tax systems reforms. The trends in tax revenues were presented and analyzed the reasons for stagnation and deceleration in tax revenues both at Central and State levels. The study revealed that the tax system reform including reform in ad min istration is a continuous exercise for imp roving the revenue productivity, minimise distortions and improve equity. It was

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R. Saravanan et. al., International Journal o f Research in Management, Econo mics and Co mmerce, ISSN 2250-057X, Impact Factor: 6.384, Vo lu me 06 Issue 08, August 2016, Page 31 -35 suggested that reforms should be undertaken at Central, State, as well as Local levels. A major objective should be to minimise distortions and compliance cost. Khandare M. B. and Dr. N. Y. Ghadage (2011) evaluated the performance of service tax in India in terms of revenue generation, assessee base and its share in the total tax kitty of India. In addition, the relative position of the share of service sector and service tax in relat ion to GDP and total tax revenue of the country has also analyzed. The analysis of data reveals that service tax in India is progressing faster in terms of revenue collection, assessee base and even service tax collection per assessee and per service but it has failed to meet the incredible growth in revenue generation by the service sector. Although service sector accounts more than half GDP of India, service tax is contributing quite negligible share towards the total tax basket of the country. R.Saravanan and Dr.M.Meganathan (2014) h ighlighted that the major results of study is that the yearly growth rate of service tax revenue is higher than the growth rate of revenue generated fro m the central excise and customs. Hence it is indicated that the service tax is progressing faster in terms of revenue generation than the central excise and customs. The can be concluded that the indirect tax is losing its share in the total tax revenue of central government and direct taxes will gain pro minence with growing economy.

III. METHODOLOGY The present study is analytical nature based on collection of secondary data.. The secondary data relating to the period of eight years (from 2006– 07 to 2013–14) have been collected fro m various published reports like Indian public finance statistics, economic surveys , min istry of statistics India and budget documents. In addition, books, journals, various websites of Government of Ind ia and central board of excise and customs ha ve also used. For the analysis of data simple techniques like percentage, simple ranking method and growth rate have been used. Service sector plays dominant role in economic develop ment while compared with sectors . Hence the attempt is made to analysis the service sector contribution to nation in the way of service tax revenue of India. Objecti ves of the Study To gain a brief v iew into the service tax prevailing in India. To appraise the progress of service tax revenue in India. To assess the share of selected services revenue in total service tax revenue. Outl ook of the Service Tax Service tax derives its constitutional authority fro m Entry No : 97 o f the union list of the seventh schedule to the Indian constitution. The law governing service tax is contained in chapter V of the Finance Act, 1944. A huge sector with 50 per cent of GDP, the service tax cannot go untaxed. Hence, service tax was introduced for the first time in 1944, vide Finance Act, 1944. As per section 66, service tax at 5 per ce nt was introduced from 1.7.1994 through the Finance Act, 1994 on the recommendations made in early 1990s by Tax Reform Co mmittee headed by Dr. Raja Chelliah. In the first year of service tax, only three services were covered. Tax was introduced on brokerage – charged by stock brokers, gross telephone bills and insurance premiu m in respect of general insurance.

IV. RESULT AND DISCUSSION Table 1: Progress of total service tax revenue in India Financi al Revenue Growth Rate Year in Crore 2006-2007 37598 2007-2008 51301 36.44 2008-2009 60715 18.35 2009-2010 57456 -5.37 2010-2011 71191 23.90 2011-2012 96670 35.79 2012-2013 130901 35.41 2013-2014 150974 15.33 Source: Secondary data Table No.1 indicates that progress of service tax revenue in India. The overall growth of service tax revenue is around 401 per cent fro m 2006-07. Ho wever its growth rate declined negatively at 5.37 per cent in the

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R. Saravanan et. al., International Journal o f Research in Management, Econo mics and Co mmerce, ISSN 2250-057X, Impact Factor: 6.384, Vo lu me 06 Issue 08, August 2016, Page 31 -35 year 2009-10 due to economic recession. It depicts that 36.44 per cent in the year 2007-08 is the highest growth rate among the entire study period followed by 2011-12. Table 2: Rank for service wise revenue collection from service tax since 2013 -14 to 2006-07 Taxable Services 2013201220112010200920082007200614 13 12 11 10 09 08 07 General Insurance 1 1 4 4 3 4 5 5 Premiu m Teleco mmunication 2 2 2 3 Execution of a Works 3 6 7 5 12 Contract Man Power Recru it ment 4 7 8 7 8 9 11 11 Business Support 5 8 5 9 11 14 6 24 Source: Secondary data Table No.2 denotes that rank for service wise revenue collection fro m service tax since 2013-14 to 200607. Tax co llect ion fro m general insurance premiu m takes first place during the years 2012-2014. Tax revenue from telecommun ication gets second rank during the years 2011-2014. Table 3: Rank for service wise revenue collection from service tax since 2006-07 to 2013-14 Taxable Services 2006200720082009201020112012201307 08 09 10 11 12 13 14 Tax on Telephone Billing 1 1 1 17 25 25 35 35 Banking and other Financial 2 3 3 1 1 1 4 6 Business Auxiliary 3 2 2 2 2 3 3 8 Transport of goods by road 4 4 5 5 6 10 13 10 Tax on General Insurance 5 5 4 3 4 4 1 1 Premiu m Source: Secondary data Table No.3 represents that rank for service wise revenue collection fro m service tax since 2006-07 to 201314. Tax on telephone billing revenue is ranked first during the years 2006-2009. Tax revenue fro m banking and other financial services is ranked first during the years 2009 – 12 and retained first six place during the entire study period. Tax on general in surance premiu m revenue is ranked first during the years 2012-2014. Table 4: Share of top 5 services in total service tax revenue (2006-07) Services Revenue in Crore Percentage Top 5 16901 44.95 Others 20697 55.05 Total 37598 100 Source: Secondar y data Table No.4 depicts that the share of top 5 services in total service tax in the year 2006-07. A mong the taxab le services top 5 services which are telephone billing, banking and other financial services, business auxiliary, transport of goods by road and general insurance premiu m respectively. It is clearly depicted that the top 5 services contribute 45 per cent in the bundle of total service tax revenue. Table 5: Share of top 5 services in total service tax revenue (2013-14) Services Revenue in Cr ore Percentage Top 5 39370 26.08 others 111604 73.92 Total 150974 100 Source: Secondary data Table No.5 signifies that the share of top 5 services in total service tax in the year 2013 -14. Among the taxab le services top 5 services which are general insurance premiu m, teleco mmun ication, execution of a works contract, manpower recruit ment and business support respectively. www.indusedu.org

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R. Saravanan et. al., International Journal o f Research in Management, Econo mics and Co mmerce, ISSN 2250-057X, Impact Factor: 6.384, Vo lu me 06 Issue 08, August 2016, Page 31 -35 It is clearly showed that the top 5 services contribute 26 per cent in the bundle of total service tax revenue and balance 74 per cent by other taxable services in the year 2013-14. The 26 per cent share in the year 2013-14 is lesser than 45 per cent contribution in the year 2006-07. Insurance B usiness Services (General Insurance) Tax on general insurance is introduced in India from 01.07.1994 (Notificat ion No. 1/94-S.T.,dated 28.06.1994). The taxable services means any service provided or to be provided to a policy holder or any person, by an insurer, including re-insurer carrying on general insurance business in relation to general insurance businesses.[Section 65 (105) (d) of Finance Act, 1994 as amended] Telecommunication Services Tax on teleco mmunication services is introduced in India fro m 01.06.2007 v ide Notificat ion no. 23/ 2007S.T.,dated 22.05.2007. The taxable services means any service provided or to be provided to any person, by the telegraph authority in relat ion to telecommun ication service. Works Contract Services Tax on works contract services is introduced in India fro m 01.06.2007 vide Notification no. 23/ 2007S.T.,dated 22.05.2007. The taxable services means any service provided or to be provided to any person, by any other person in relation to the execution of a works contract, excluding works contract in respect of roads, airports, railways, transport terminals, bridges, tunnels and dams. Manpower Recrui tment or Suppl y Agency’s Services Tax on manpower recruit ment or supply agencies services is introduced in India fro m 07.07.1997 Notification No.23/97-S.T dated 02.07.1997. The taxable services means any service provided or to be provided to any person, by a manpower recru it ment or supply agency in relation to the recruit ment or supply of manpower, temporarily or otherwise, in any manner. Business Support Service On 01.05.2006 tax on Business Support service is introduced in India. “Support Services of Business or Co mmerce” means services provided in relation to business or commerce and includes evaluation of prospective customers, telemarketing, processing of purchase orders and fulfillment services, in formation and tracking of delivery schedules, managing distribution and logistics, customer relationship management services, accounting and processing of transactions, operational assistance for marketing, formulat ion of customer service and pricing policies, infrastructural support services and other transaction processing. Banking and other financial services Tax on Banking and other financial services is introduced in India fro m 16.07.2001 v ide Notification no. 4/2001-S.T. dated 09.07.2001. The taxable services means any service provided or to be provided to any person, by a banking co mpany or a financial institution including a non -banking financial company or any other body corporate or commercial concern, in relat ion to banking and other financial services. Trans port of Goods by Road Tax on transport of goods by road business auxiliary service is introduced in India fro m 01.01.2005. The Taxable Serv ice means any service provided or to be provided to any person, by a goods transport agency, in relation to transport of goods by road in a goods carriage. Table 6: Progress of selected services revenue in Indi a Taxable Services 2006-07 2013-14 Growth Rate Tax on Telephone Billing 6049 764 -87.37 Banking and other Financial 2948 7177 143.45 Business Auxiliary 2943 6599 124.23 Transport of goods by road 2482 4639 86.91 Tax on General Insurance Premiu m 2479 8770 253.77 Source: Secondary data Table No.6 shows that the progress of selected services revenue in the bag of service tax. Tax on General Insurance Premiu m has moved forward 253.77 growth rate in the journey. Tax on Telephone Billing has reached backward - 87.37 decline rate in the journey.

V. MAJOR FINDINGS  The overall g rowth of service tax revenue is around 401 per cent fro m 2006 -07.  Among the entire study period 36.44 per cent in the year 2007-08 is the highest growth rate. www.indusedu.org

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R. Saravanan et. al., International Journal o f Research in Management, Econo mics and Co mmerce, ISSN 2250-057X, Impact Factor: 6.384, Vo lu me 06 Issue 08, August 2016, Page 31 -35  Tax collection fro m general insurance premiu m takes first place during the years 2012-2014.  The revenue generation from service tax is declin ing during the year 2008 -09, 2009-10 and 2013 -14 because of economic recession and financial crisis.  Tax on telephone billing revenue is ranked first during the years 2006 -2009.  Tax on General Insurance Premiu m has moved forward 253.77 gro wth rate in the journey. Tax on Telephone Billing has reached backward - 87.37 decline rate in the journey.

VI. CONCLUSION Conclusion In India, indirect taxes such as central excise, customs and service tax are p laying an important role in the revenue generation for central government. It is express that the service sector takes dominant position in growing economy but the tax contributed by service sector towards nation is very small wh ile co mpared with other taxes . In short, it is to say that the service tax is generating tiny revenue from the service sector. While co mpared with other sector like manufacturing, the service sector contributes small percentage to total tax revenue of the country. Scope of further research Tax is such a wide area of research that no single study can cover different related dimensions . An analysis of direct tax of India and revenue analysis on indirect tax of India can also be conducted in this area. Also there is a need to conduct a comprehensive and systematic study covering the various aspects of tax administration including taxpayer service and modernisation of tax ad min istration, effects of new Direct Tax Code on revenue collection etc.

VII. REFERENCES

[1] Rao M.Govinda (2005), “Tax system reform in India: Achievements and challenges Ahead”, prepared for the International Symposium on Ta policy and Reform in Asian Countries, Hitotsubhasi University, Tokyo, Japan, July1 -2. [2] Govinda Rao, M. and Kavitha Rao, R(2005)., “Trends and issues in Tax Policy and Reform in India” , Working Paper, National Institute of Public Finance and Policy, New Delhi. [3] M.M.Sury(Edited),(2006)”Taxation in India-1925-2007.History Policies,Trends and Outlook”, Indian tax foundation, New Delhi. [4] GovindanN.S (2007)”Indirect Taxes made Easy”, C.Sitaraman & Co Pvt Ltd.., Law Book Publisher.Chennai.Ed7 th. [5] Vijay Kumar (2008) “Service Sector in India Recent Policy Initiatives”, New Century Publication, New Delhi. [6] J.K. Mittal,(2009) “Law, Practice and procedure of Service Tax”, CCH – A Wolters Kluwer (India) Pvt. Ltd., New Delhi, 17 th Ed., Vol. -01. [7] Mr. Khandare M. B. and Dr. N. Y. Ghadage (2011) , “A Study Of Performance Evaluation Of Service Tax In India ” ISRJ , Vol - I , ISSUE – V, June. [8] Abiola, J., and Asieh,M., (2012) “Impact of tax administration on government revenue in a developing economy : A case study of Nigeria,” International Journal of Business and Social Science, Vol. 3 (8), 2012, pp. 99-113. [9] Amjath M.M, Vijayarani (2014), “Income Tax Compliance Behavior and Sector-wise Contribution to Government Tax Revenue in Sri Lanka”, International Journal Of Research & Business Innovation Vol.2, No-2. pp.195-199. [10] R.Saravanan, Dr.M.Meganathan (2014), “An Analysis Of Revenue Receipts Of India With Special Reference To Tax Revenue”, International Journal Of Marketing, Financial Services & Management Research, Issn 2277-3622 Vol.3 (12), December. [11] Girish Garg (2014) “Basic Concepts and Features of Good and Service Tax In India”, International Journal of scientific research and management (IJSRM) Volume - 2, Issue – 2. [12] Various Service Tax Notifications, Circulars, Trade Notices, Orders issued by the Central Government and CBEC. [13] Govt of India ,Indian Public Finance Statistics, [14] Various issues of Economic Survey of India

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