The Hindu : Business : Suggestion to bring transport under service tax net

Online edition of India's National Newspaper
Thursday, Jun 24, 2004

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Business

Suggestion to bring transport under service tax net

By Alok Mukherjee

NEW DELHI, JUNE 23. A strong political will to rope in the entire goods transport sector into the service tax net is likely to help the Manmohan Singh Government to implement the socio-political objectives of the Common Minimum Programme (CMP) to a large extent. The last time the United Front Government tried it in 1997, it was faced with a nation-wide truckers strike and eventually gave in to the agitation. At present, this sector is marginally taxed on the periphery.

Calculations by the National Council of Applied Economic Research (NCAER) have shown that with a turnover of around Rs. 160,000 crores, the road transport sector could yield a service tax revenue of Rs. 12,800 crores annually at the current level of 8 per cent tax. A similar tax on goods transported by rail would yield another Rs. 2,200 crores and with the service tax collections target minus these two sectors at Rs. 13,000 crores, the total could shore up tax revenues of the Central Government by Rs. 28,000 crores.

On the other hand, the CMPs promise of providing 100 days of employment to one person from each poor household is expected to cost the Central Government Rs. 8,126 crores every year. With Rs. 15,000 crores additional service tax revenue from the transport sector alone, the Government would well be in a position to meet this additional expenditure on account of the CMP promise.

In calculating the cost of providing guaranteed employment for 100 days in a year, the NCAER has taken into account the poverty profile in 1999-2000 (the latest official figures available) and a household size as in the 2001 census. Accordingly, at the wage rate of Rs. 60 per day in rural areas and Rs.100 per day in urban areas, the cost of providing guaranteed employment to every poor household works out to Rs. 34,224 crores over the next five years. The NCAER has also assumed that the material cost for the employment programme would be the same as the wage component, thereby taking the whole cost of the programme to Rs. 68,448 crores. The Central Government's share would be Rs. 51,337 crores (taking the 75:25 ratio between Centre and the States for financing employment assurance scheme) and the additional burden on Central Government finances (after netting out expenditure of Rs.10,707 crores on existing programmes) would be Rs. 40,630 crores in the next five years or Rs. 8,126 crores every year.

Though the accretions to the service tax collections could take care of the additional expenditure on the guaranteed employment scheme, the NCAER has, however, cautioned that there are likely to be other shortfalls in revenue collections. For instance, the public sector disinvestment process is practically on hold and revenues in the last financial year from this head worked out to Rs. 16,048 crores. The CMP has the provision to sell off chronically loss making units, but this exercise is unlikely to yield much and probably nothing in the current financial year as efforts would have to be made first to try and revive these units.

The Manmohan Singh Government is also committed to increase the allocation on education and health, but this is expected to be done gradually in the next five years. Still, the NCAER has calculated that in education and health, the budgeted expenditure in 2002-03 was 4.5 per cent of the gross domestic product (GDP) and if this is to be increased to 8-9 per cent of the GDP (that is, education 6 per cent of GDP and health 2-3 per cent), the additional expenditure could be between Rs. 19,000 crores and Rs. 25,000 crores for the Centre and the States in 2004-05. As education and health are State subjects, the larger part of this would have to be borne by the States which now have very little leeway in increasing spending. Still, the extra expenditure for the Central Government could be in the range of Rs. 4,278 crores to Rs. 5,550 crores for the current year.

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