A service tax is, for those of you who don't know because you're a bit unfamiliar with the intricacies of India's tax laws, is a sales tax on services.
Like the legislators in many of the United States of America's 50 states, the tax bureaucrats in India made a big booboo when they wrote and implemented up the country's sales tax laws. They decided that since people like car mechanics, dry cleaners, custom house brokers, architects, beauticians, travel agents, accountants, etc. were providing services instead of vending products their fees should not be subject to sales tax.
Whoops. Big mistake. Consternation throughout the nation, panic in every government building from Agra to Warangal. Big loss of revenue. Significantly fewer rupees for the politicians to throw away on nonsense. What could be done? Simple, simply impose a new sales tax on the previously exempt services and call it something else. In this case, a service.
Politicians in the states, tend to take a more direct path. In California, for example, businesses like car rental companies used to be exempt from sales taxes because they weren't selling anything, they were just providing a service. These days, they're forced to charge sales tax just as if they were selling the junkers instead of renting them.
The difference in India is that because the so-called service tax is (wink-wink) not legally defined as a sales tax, businesses offering services covered by the service tax must file their tax reports and payments using different forms than businesses which charge a sales tax.
Perhaps not surprisingly there are more service tax forms having to do with appealing the amount that must be paid, demanding refunds, and protesting against it than there are forms for actually reporting and paying it.
Of 12 official forms devoted to filing material about the service tax to the government, only one -- Form-TR6 -- is devoted to paying of the tax. A full seven are devoted to appealing the amount of taxes being assessed and demanding refunds for alleged overcharges by the tax examiners.
Originally set at 5 percent in 1994, the service tax rate had inexorably risen to 12 percent by 2008. However, in the only positive fallout recorded from the 2009 world economic crash, the Indian Parliament reduced the service tax rate to 10 percent in attempt to stimulate spending.