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Empirics of service taxation in India: a macroeconomic perspective

Author

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  • Mini P. Thomas

    (BITS Pilani-Hyderabad Campus)

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.

Suggested Citation

  • Mini P. Thomas, 2017. "Empirics of service taxation in India: a macroeconomic perspective," Journal of Social and Economic Development, Springer;Institute for Social and Economic Change, vol. 19(1), pages 143-160, April.
    • Handle: RePEc:spr:jsecdv:v:19:y:2017:i:1:d:10.1007_s40847-017-0036-0
    DOI: 10.1007/s40847-017-0036-0
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    References listed on IDEAS

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    1. Abhijit Das & Rashmi Banga & Dinesh Kumar, 2011. "Global Economic Crisis : Impact and Restructuring of the Services Sector in India," Trade Working Papers 23225, East Asian Bureau of Economic Research.
    2. Planning Commission, India, 2011. "Faster, Sustainable and More Inclusive Growth: An Approach to the 12th Five Year Plan," Working Papers id:4452, eSocialSciences.
    3. Leuthold, Jane H., 1991. "Tax shares in developing economies A panel study," Journal of Development Economics, Elsevier, vol. 35(1), pages 173-185, January.
    4. Ashok Kotwal & Bharat Ramaswami & Wilima Wadhwa, 2011. "Economic Liberalization and Indian Economic Growth: What's the Evidence?," Journal of Economic Literature, American Economic Association, vol. 49(4), pages 1152-1199, December.
    5. Tanzi, Vito & Zee, Howell H., 2000. "Tax Policy for Emerging Markets: Developing Countries," National Tax Journal, National Tax Association;National Tax Journal, vol. 53(2), pages 299-322, June.
    6. Abhijit Sen Gupta, 2007. "Determinants of Tax Revenue Efforts in Developing Countries," IMF Working Papers 2007/184, International Monetary Fund.
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    Cited by:

    1. Thomas, Mini P, 2019. "Measurement of Investment Contribution of Service Sector in India’s Economic Growth," MPRA Paper 103702, University Library of Munich, Germany.

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    More about this item

    Keywords

    Service tax; Tax–GDP ratio; Tax policy;
    All these keywords.

    JEL classification:

    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General

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