Wednesday, August 14, 2013

Service Tax Compliance – voluntary disclosure – ROLE OF CA PROFESSION

It has been observed by all Chartered Accountants that the compliance of service tax law is not adequate and there is a widespread misunderstanding and in a number of cases non compliance is for tax avoidance. After the amendment of service tax law with effect from 1st July, 2012 introducing service tax on all the services except those which are either in the negative list or are in the exempted list of services, the compliance of service tax law has become especially important. The central government has recently amended the service tax law providing powers to service tax officials to even arrest the defaulting tax payers, where tax avoided for payment is in excess of Rs 50 Lakhs. The recent arrest of Managing Director of a mid size Courier Agency based in Kolkata is only an example of the approach of the department. Dire consequences are to follow for economic offenders. Even the finance minister exhorted and issued a terse alert in this regard lately.

The government of India has also brought in a special scheme for voluntary disclosure and payment of service tax liability to cover the period from 1st October 2007 to 31st December 2012, without payment of penalty and interest up to 31st December 2013, being the last date for furnishing necessary details to the service tax department and payment of service tax under the Service tax Voluntary Compliance Encouragement Scheme (VCES) 2013. A further time is allowed under the scheme permitting for staggered payment (payment in installment).

The profession of Chartered Accountants has always played the role of professional contributing towards nation building and has ensured and guided all their clients for better and better compliance of various tax laws. The voluntary disclosure scheme under service tax law is an important opportunity to meet the expectations of the government, society and the clients. The chartered accountants in practice as well as those who are in employment may proactively consider to -


  1. Update their legal knowledge about the provision and requirement of service tax law as well as voluntary disclosure scheme.
  2. Review the books of account and financial statements of their clients, during the process of audit/accounting to explore the need for a detailed service tax audit.
  3. Obtain a special assignment of service tax audit of their clients to cover an appropriate period for review.
  4. Identify & list out all major deficiencies in compliance of service tax law and in terms of discussion & decision of the clients, it maybe appropriate to advise the clients to take benefit of voluntary disclosure scheme under service tax law.
  5. Complete all the formalities for filing the necessary returns and payment of tax in accordance with the service tax law so as to ensure that the clients are not put to unnecessary inconvenience or harassment besides prosecution, penalty & arrest.

It is also important for the government of India to consider and setup a special committee or group to
ensure that the service tax law is rationalized and not only the rate of interest is reduced across the board to achieve better compliance but also the Government should consider much lower service tax rates on certain specific services which require incentive and prioritization on the basis of benefit to public. Heavy rate of service tax is not only adversely affecting the economy by bringing in inflationary effect but is also adversely impacting the economic growth of the country by incentivizing non compliance and parallel economy. This can be substantiated by the fact that the service sector contributes to around 65% of the GDP but the number of service tax payers is quite less. It is very important that the service tax rates are reasonable and need to meet the desired objective of the stakeholders and specially the public at large. The tax rate and GDP ratio is already too high, which is impacting the growth rate of the Indian economy.

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