Abstract
This paper attempts to study service taxation in India from a macroeconomic perspective, focusing on broad questions such as the level and composition of service tax revenue during the time span of the “positive list approach” from 1994–1995 to 2011–2012. The income elasticity of service tax revenue collection is estimated for the Indian economy with the help of pooled ordinary least squares, utilising data from Directorate of Service Tax and National Account Statistics. The importance of service tax as a consumption-based tax is also analysed descriptively. The study found that “business services” and “real estate and ownership of dwellings” have emerged as the major service tax revenue earners in recent years. The income elasticity of service tax revenue collection is estimated to be 2.74. The study found that in spite of India’s low tax–GDP ratio and humble contribution of service tax to total tax revenue collection, a high and statistically significant income elasticity of service tax revenue collection implies that service tax collection has in fact grown at a pace much faster than services GDP, underlining the importance of service sector in the Government’s revenue mobilisation efforts.
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Source: Author’s calculation and compilation based on data from DST, Government of India
Source: Author’s compilation based on data from DST and NAS, various years
Source: Author’s calculation and compilation based on data from DST, Government of India
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Notes
When service tax was first introduced in India on 1 July 1994, it was imposed at the rate of 5%. It was later on increased to 8% in May 2003 and to 10% in September 2004. The Union Budget of 2006–2007 increased it further to 12%. The Union Budget of 2009–2010 reduced it to 10%. “Negative List” approach to service taxation was introduced in the Union Budget of 2012–2013. This budget also reverted the service tax rate to 12%. The Union Budget of 2015–2016 hiked the service tax rate to 14%.
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Acknowledgement
This paper is based on the author’s doctoral dissertation, under UGC-Junior Research Fellowship Scheme, at the Institute for Social and Economic Change, Bangalore. The author is very grateful to her PhD supervisor, Prof. M R Narayana, and anonymous referees of this journal for their valuable comments and suggestions on an earlier version of this paper. However, the usual disclaimers apply.
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Appendix
Appendix
See Tables 5, 6 and Figs. 4, 5.
Source: Author’s compilation based on data from National Account Statistics, CSO
Components of India’s private services GDP (1994–1995 to 2011–2012).
Source: Author’s compilation based on data from National Account Statistics, CSO
Share of sub-sectors in private services GDP (1994–1995 to 2011–2012).
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Thomas, M.P. Empirics of service taxation in India: a macroeconomic perspective. J. Soc. Econ. Dev. 19, 143–160 (2017). https://doi.org/10.1007/s40847-017-0036-0
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DOI: https://doi.org/10.1007/s40847-017-0036-0