Govt to cast service tax net on RBI

The government is planning to bring the Reserve Bank of India under the service tax net. At present, the central bank is only exempt from income tax under the RBI Act.

"Since the RBI Act has not provided for an exemption from service tax, the central bank can be brought under the net by a simple government notification," said an industry source.

"Further, the RBI Act came into being in 1949 when there was no service tax," the source added.

Though the RBI has raised the issue with the government at various forums, it is yet to get a clear picture. According to banking sources, there are a lot of financial services, which the central bank provides.

While it handles the government business such as distribution of pension, manages subscription to government bonds, collection of direct and indirect taxes, it is also considered a storehouse of financial data.

The RBI also furnishes financial data to various government agencies since it is apex body regulating the financial sector.

The government has registered an increase of 12 per cent in indirect tax collection for the first nine months of the fiscal 2004-05 at Rs 1,17,856.86 crore (Rs 1,178.57 billion) against a collection level of Rs 1,05,011.03 crore (Rs 1,050.11 billion) achieved in the same period during the previous year.

Service tax collections, on the other hand, for April-December 2004 stood at Rs 8,219.56 crore (Rs 82.20 billion) against Rs 5,084.46 crore (Rs 50.84 billion) in the previous year.

The Centre has budgeted service tax collections for 2004-05 at Rs 14,150 crore (Rs 141.5 billion). According to tax officials, while the department has collected around Rs 14,134 crore (Rs 141.34 billion) marginally short of the target by Rs 16 crore (Rs 160 million), it still constituted a small proportion of the total indirect tax collection.

With greater reduction of tariff and duty structure for providing a level playing field to the corporate sector post WTO, the government is gradually slashing corporate taxes.

In the last budget, the corporate tax was brought down from 40 per cent to 35 per cent.

However in order to compensate for loss of revenue on account of reduction of duty structure, there is case for boosting service taxes.

The source said the main reason for the low base of the service tax was the unorganised structure, which is largely out of the ambit of tax.