FICCI Against TDS in Service Tax
IN a communication to the Directorate General of Service Tax, FICCI has questioned the rationale of the TDS proposal now when the introduction of GST is imminent and Service Tax is to be subsumed within the GST. Therefore, any major change in the administration and collection of service tax will be for a relatively short period.
FICCI is of the view that: -
The introduction of TDS mechanism in the collection of service tax is not warranted.
++ The proposal to introduce TDS in service tax collection in the existing indirect tax structure will envisage obtaining TDS registration, issuing TDS certificate, maintaining TDS register and filing of TDS return by the paying entity, and would thus entail additional cost of compliance of both the industry and the government, apart from complicating the tax structure further, which may not be desirable.
++ The proposal is also irrelevant in view of the newly introduced Point of Taxation Rules (PoT Rules), having become effective from 1st July, 2011. The industry has, of late, been reeling under the rising interest cost for its working capital. These Rules have now aggravated the problem insofar as the service provider will have to deposit the tax, even before he receives payment or even if he does not receive the payment ever. The proposal to introduce TDS would further aggravate the already delicate situation.
++ There are also apprehensions that the proposal might result in dual payment of service tax, in as much as the service provider will be required, on one hand, to make the service tax payment on his raising the invoice, and the TDS deduction, on the other hand by the service recipient at the time of releasing the payment on the same transaction. The same would pose the problem of TDS credit / refunds.
++ The TDS system for collection of service tax, may also not be feasible because of the intricacies of input tax credit claims by the service provider.
++ Service tax collected during the month is mandated to be deposited by the deductors by 5th of the next month. Even service tax collected during March is required to be deposited within last date of March. Hence, the exchequer is assured of the collection. Moreover, failing to comply with deduction is subject to payment of interest and penalty.
FICCI has, therefore, urged to drop the idea of introducing TDS mechanism for the collection of service tax. In case, however, the same has necessarily to be introduced, it would be imperative to scrap PoT Rules. FICCI believes that the TDS mechanism would be useful only in situations where the service provider is in an unorganized sector. It could also be used in sectors where tax evasion is reportedly high, instead of having a TDS system across the board.
From the anxiety shown by FICCI, it would appear as if the Government is keen to bring in TDS in Service Tax very soon.