Brunt of Service Tax

Service tax in b2b transactions, being added cost for the buyer, results in superfluous taxation and at 12.36% it effectively rises the prices of goods and or beats down service charges across the range of services depending on the clout of the service provider and thus eventually hurts employee salary levels, most where over 70% of the charge is made up of salary cost. Ten lac per year limit does not help to balance the adverse impact in such situations.

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Recent protests by the stars of the movie world for themselves and for their colleagues and their lesser known associates over the extension of the service tax on their professional income and the spontaneous supportive response from the I & B Ministry reinforces the general belief about the lack of depth in the thinking on the part of the government on things that concern the welfare of the poor sections of the society. The spread of service tax across services without allowing relief where it is indeed due is one among the many stark indicators.

The quick and wholehearted reassuring statement of the secretary of the I & B Ministry in support of the film fraternity perhaps is indicative of how ministries connect with the issues concerning the top strata of the society and remain ignorant of the dire concerns of voiceless deprived sections. Rightful though it is to protest against a new tax, I fail to understand how these stars who earn in tons feel being taxed unfairly when every other individual service provider pays it and lakhs of workers in the service sector who earn much less, bear it without the grumble. Lot many, like the poor chaps who earn less than Rs.8000 a month bear the brunt of service tax, though they do not directly pay it.

My limited point is; government's simplistic approach to exclude service providers with low revenue levels from the burden with the 10 lac per year limit does not quite settle the cause of balancing on social equality. In fact service tax is hurting harshly low salaried employees in the service sector particularly the vast set of underprivileged workers in the facility management sector whose employers, with revenues in crores, are liable to pay the tax.

Consider this;

Film actors and other talent providers in the sector make their charge as individuals which are input costs for the producers. The ten lack limit effectively excludes the low earning individuals in the sector. Those who earn more can't have a grouse for they are on par with other individuals providing whatever service.

Compare that with the lakhs of people working as security guards and housekeeping staff working with facility management companies. Value addition these employers make to earn 10 to 15 % profit on the salaries of the staff they depute is insignificant. They collect 12.36 % on the salary charge they make to their clients on behalf of the government. The poor men and women don't even complain for they don't know about the tax paid on their behalf.

Where is the sense of social justice in this parallel situation? Someone who is quite affluent cries foul and is being heard and supported and lakhs of people who earn pittance have no knowledge of the arguably huge tax paid on the humble work they do. The difference is that the underprivileged lot of workers offer their services through a systemized agent called, company. Privileged people in the movie sector, I am sure, will manage to get the government to tweak the rules in their favour but I wonder who would lobby for the ocean of underprivileged employees in the facility management sector?

But government's business is to ensure social justice and it is the responsibility of the concerned ministries to upgrade their abilities to think out finer impact of the rules they set, in ensuring social justice. Component of staff cost in services can vary from 30 to 100% depending upon the kind of service and the service tax turns sinful higher the component of staff cost which inarguably makes the flat charge of 12.36% across services rather outrageous. The rule effectively amounts to taxing 12.36% on workers who earn much less than the taxable limit.

Service tax in b2b transactions, being added cost for the buyer, results in superfluous taxation and at 12.36% it effectively rises the prices of goods and or beats down service charges across the range of services depending on the clout of the service provider and thus eventually hurts employee salary levels, most where over 70% of the charge is made up of salary cost. Ten lac per year limit does not help to balance the adverse impact in such situations. Worse so, in service businesses like the facility management where untrained and uneducated human resource is provided and the staff cost component in the charge is over 85%. In that sense an exorbitant rate of service tax applied without due variation is socially regressive, at the cost of low wage workers.

Startlingly, the government is missing a larger sense too with this flat and across the board application of service tax. Facility management sector which includes similar human resource providing outfits is growing at a progressive rate and fast effectively helping with employment opportunities for vast set of utterly deprived class of people in the society. And, the government should know, it should sail with the positive flows in the economy in augmenting employment opportunities for the underprivileged.

I believe facility management companies have an industry association. What is the purpose if they can't talk out a serious issue with the government?

16 March 2013

Copyright: Adve Srinivasa Bhat, India.