Backed by strong economic growth, the government is expected to collect about Rs 21,000 crore (Rs 210 billion) as service tax in the current fiscal year, crossing the target of Rs 17,500 crore (Rs 175 billion) by a wide margin.

The potential for growth in revenues from services is high as this sector has 52 per cent share in India's gross domestic product.

The collections from service tax in the last fiscal (2004-05) were about Rs 14,196 crore (Rs 141.96 billion), R P Raheja, additional director general (service tax) said, addressing a tax seminar organised by the Indian Merchants' Chamber and Assocham.

At present, only 81 services are under the tax net. The service tax accruals had the potential to cross the Rs 50,000-crore (Rs 500 billion) mark in the next few years as more services were brought under the tax net and economic growth gathered further momentum, he said.

Mumbai, where the All India Directorate for service tax was located, contributed about 26 per cent of the total service tax collection, he said.

The service tax administration has been working on the premise of voluntary compliance and trust. The harsh provisions of prosecution and arrest were not applicable to service tax matters, he said.

While the use of information technology in tax administration has grown, the response from taxpayers to electronic filing of returns was very poor.

The electronic filing would help to reduce the burden on the department and also improve efficiency, Raheja said.

Bringing services under taxation is a challenge as services are intangible and are provided by large groups of organised and unorganised service providers, including retailers scattered across the country.

R Sekar, joint secretary in the union finance ministry, said the transaction cost in collecting service tax had to be brought down to improve quality of administration and coverage.

The government would simplify procedures, tone up department infrastructure and seek assistance of business chambers to increase effectiveness, Sekar said.