Report: Foreign Service Recipients Account for Majority of Tax Evasion Cases

Posted by Reading Time: < 1 minute

Apr. 26 – Local firms receiving services from overseas firms accounted for a quarter of service tax evasion during the period 2008-09, according to a Comptroller and Auditor General (CAG) report.

Current tax regulations dictate that the receiver of services in India must pay service tax for services received from a non-resident with no office in the country.

The report says that of the Rs. 3.7 billion estimated government revenue losses in service taxes, Rs. 926 million comprised of tax not paid by Indian recipients of foreign services.

It said that the majority of the loss in revenue was connected to purchasing intellectual property rights, followed by services of banking, business auxiliary, management consultants and consulting engineers. “However, service tax of Rs. 47.80 crore leviable under intellectual property right was not deposited, which was recoverable with interest and penalty,” CAG said.

The CAG cited several cases including Bharti Airtel, which obtained the services of various foreign companies to provide international roaming on its behalf, paying Rs. 154 million for the services from April 2006 to March 2008. “…but service tax (of Rs 1.89 crore) under the category of business auxiliary service was not paid,” the auditor added.