ISSN No-2230-7850

Vol.1,Issue.IX/Sept 11pp.1-4

Research Paper

A CORRELATION ANALYSIS OF SERVICE TAX IN INDIA

Prof. CMA.Makarand Raghunath Sakhalkar.
: Department of Commerce
Gogate Jogalekar College, University of
Mumbai.

Based on recommendations made by Chelliah Committee on Tax Reforms, Service Tax was introduced for the first
time in the year 1994. It is a Union levy, with a selective approach, whereby it is applicable to selected categories of
services and not to all the services.
As per the Finance Act 1994, all service providers in India, except those in the state of Jammu and
Kashmir, are required to pay a service tax in India. The provisions related to service tax come into effect on 1st July
1994.

When the concept of Service Tax was introduced in

India in 1994-95, only three services came under the purview
of the tax. Since then, in several phases and installments, the
government has brought nearly 117 categories under the
ambit of service tax.
The government charges service tax in India on the
gross amount which the service providers charge from their
clients. By bringing more and more services within the scope
of service tax, the government intends to enhance its revenue
earnings manifold.
The Service Tax rate used to be 5% when the
government first launched service tax in India in 1994. In
2003, this was hiked to 8%, in 2004 it increases to 10.20%, in
2006 it increases to 12.24%, in 2007 it increases to 12.36%.
Since 24th February 2009 the rate of service tax in India is
10.30%, including a 2% Education Cess and 1 % Secondary
and Higher Secondary Education Cess.
Service Tax is one of the major sources of revenue to
the government. The service tax revenue is correlated with
rate of service tax, number of taxable services and number of
assessees.
Service Tax was introduced in the year 1994 with the
enactment of Finance Act 1994. It was started with making 3
services taxable under service taxes which are General
Insurance, Stock Broking and Telephone. But year after year
in the coming Finance Acts the government was constantly
adding new services to this list and was making amendments
in the already existing services and now in the year 2009-10
number of taxable services becomes 117 under the service
tax laws.
The effective rate of service tax was 5% in the
beginning, which has undergone several changes and has
been increased every year, currently effective rate of service
tax is 10.30% of the total gross amount charged by the
service providers. This rate of tax is inclusive of Education
Cess of 2% of service tax and Secondary and Higher
Secondary Education Cess of 1% of the service tax, which
have been introduced in the year of 2004 and subsequently in
2007.
The number of assesses in the year 1994-95 were 3943
increased to 1307286 in the year 2009-10 It shows increase
in number of assesses 332 times over the 16 years period. The
service tax revenue has shown a steady rise since its

inception in 1994. They have grown almost 142 folds since

1994-95 i.e. from Rs.410 cores (1994-95) to Rs.58336.36
crores (2009-10).
In this paper an attempt has been made to review the
literature on the subject service tax and other related subjects.
The literature for review is mostly drawn from Government
of India's latest publications, Annual financial budget, CBEC
circulars, notifications, annual performance reports of
DGST.
Objectives of the study to correlate the Service Tax Revenue,
Number of Service Tax Assessees, Number of Taxable
Services.This study will be mainly based on the secondary
data either published or available from the government
records or available from websites. The necessary secondary
data will be collected mainly from the Budget Documents,
published by the Ministry of Finance of Government of
India, Annual Performance Reports of DGST.The study is
related to 1994-95 to 2009-10 periods of 16 years which is
mainly related to various aspects of revenues.The data
collected was tabulated and interpreted with the help of
powerful statistical technique as correlation analysis.
Hypothesis: Against this background, the following
tentative hypotheses were taken up for testing with the help
of empirical data collected:
Hypothesis 1: The service tax revenue is correlated with
number of taxable services.
Hypothesis 2: The service tax revenue is correlated with
number of service tax assessees.
Hypothesis 3: The number of taxable services is correlated
with number of service tax assessees.
Correlation Analysis: To support our conclusion, here we
are using a powerful statistical measure Correlation.
Correlation is an analysis of Covariation between two
variables.
1) The service tax revenue is correlated with number of
taxable services.
Let x means Revenue in Rs. Crores and y means Number of
Services. Here we observe that the correlation coefficient
between Revenue in Rs.Crores and Number of Services is r =
0.902429. This value supports our conclusion that the

Indian Streams Research Journal

A CORRELATION ANALYSIS OF SERVICE TAX IN INDIA

Vol.1,Issue.IX/Sept 11

Revenue in Rupees is directly and positively correlated with

number of services. As the number of services increases, the
revenue also increases.

=16905.375

=461517.375

TABLE-1
CORRELATION BETWEEN REVENUE AND NO. OF SERVICES

=0
1994-95
1995-96
1996-97
1997-98
1998-99
1999-00
2000-01
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10
Total

=
=

410
846
1022
1515
1787
2072
2612
3305
4125
7890
14196
23053
37482
51133
60702
58336
270486

3
6
6
18
26
26
26
41
52
62
75
84
99
100
106
117
847

-16.49538
-16.05938
-15.88338
-15.39038
-15.11838
-14.83338
-14.29338
-13.60038
-12.78038
-9.015375
-2.709375
6.147625
20.576625
34.227625
43.796625
41.430625
0

-4.99375
-4.69375
-4.69375
-3.49375
-2.69375
-2.69375
-2.69375
-1.19375
-0.09375
0.90625
2.20625
3.10625
4.60625
4.70625
5.30625
6.40625
0

272.0974
257.90353
252.2816
236.86364
228.56526
220.02901
204.30057
184.9702
163.33799
81.276986
7.3407129
37.793293
423.3975
1171.5303
1918.1444
1716.4967
7376.329

24.937539
22.031289
22.031289
12.206289
7.2562891
7.2562891
7.2562891
1.4250391
0.0087891
0.8212891
4.8675391
9.6487891
21.217539
22.148789
28.156289
41.040039
232.30938

82.373779
75.378691
74.552591
53.770123
40.725123
39.957404
38.502779
16.235448
1.1981602
-8.170184
-5.977559
19.09606
94.781079
161.08376
232.39584
265.41494
1181.318

=0
= 7376.329
= 33992.286
=

=942.41622
=

=
=

=16905.375

=0

= 46.092494

= 942.41622

=52.9375

=21.471389

=0.952253

TABLE-3

=0

CORRELATION BETWEEN NO.OF SERVICES AND NO. OF ASSESSEES

= 7376.329
= 232.30938
=

=73.832377
=

=21.471389

=
=

= 3.8104252

= 73.832377
=0.902429

It reveals that hypothesis service tax revenue is correlated

with number of taxable services is valid.

1994-95

3943

-4.99375

-45.75744

24.937539

2093.7431

228.5012

1995-96

4866

-4.69375

-45.66514

22.031289

2085.3048

214.34074

1996-97

13982

-4.69375

-44.75354

22.031289

2002.8791

210.06192

1997-98

18

45991

-3.49375

-41.55264

12.206289

1726.6217

145.17453

1998-99

26

107479

-2.69375

-35.40384

7.2562891

1253.4317

95.369087

1999-00

26

115495

-2.69375

-34.60224

7.2562891

1197.3148

93.209777

2000-01

26

122326

-2.69375

-33.91914

7.2562891

1150.5079

91.369677

2001-02

41

187577

-1.19375

-27.39404

1.4250391

750.43329

32.701632

2002-03

52

232048

-0.09375

-22.94694

0.0087891

526.56194

2.1512754

2003-04

62

403856

0.90625

-5.766138

0.8212891

33.248342

-5.225562

2004-05

75

774988

2.20625

31.347063

4.8675391

982.63833

69.159457

2005-06

84

846155

3.10625

38.463763

9.6487891

1479.461

119.47806

2006-07

99

940641

4.60625

47.912363

21.217539

2295.5945

220.69632

2007-08

100

1073075

4.70625

61.155763

22.148789

3740.0273

287.81431

2008-09

106

1204570

5.30625

74.305263

28.156289

5521.272

394.2823

2009-10

117

1307286

6.40625

84.576863

41.040039

7153.2457

541.82053

Total

847

7384278

232.30938

33992.286

2740.9052

2) The service tax revenue is correlated with number of

service tax assessees.
Let x means Revenue in Rs. Crores and y means Number of
Assessees.Here we observe that the correlation coefficient
between Revenue in Rs.Crores and Number of Assessees is r
= 0.952253. This value supports our conclusion that the
Revenue in Rupees is directly and positively correlated with
number of Assessees. As the number of Assessees increases,
the revenue also increases

=52.9375

=461517.375

=0
=0
= 232.30938
= 33992.286
=

=171.30658

TABLE-2

=
410
846
1022
1515
1787
2072
2612
3305
4125
7890
14196
23053
37482
51133
60702
58336
270486

3943
4866
13982
45991
107479
115495
122326
187577
232048
403856
774988
846155
940641
1073075
1204570
1307286
7384278

-16.49538
-16.05938
-15.88338
-15.39038
-15.11838
-14.83338
-14.29338
-13.60038
-12.78038
-9.015375
-2.709375
6.147625
20.576625
34.227625
43.796625
41.430625
0

-45.75744
-45.66514
-44.75354
-41.55264
-35.40384
-34.60224
-33.91914
-27.39404
-22.94694
-5.766138
31.347063
38.463763
47.912363
61.155763
74.305263
84.576863
0

272.0974
257.90353
252.2816
236.86364
228.56526
220.02901
204.30057
184.9702
163.33799
81.276986
7.3407129
37.793293
423.3975
1171.5303
1918.1444
1716.4967
7376.329

2093.7431
2085.3048
2002.8791
1726.6217
1253.4317
1197.3148
1150.5079
750.43329
526.56194
33.248342
982.63833
1479.461
2295.5945
3740.0273
5521.272
7153.2457
33992.286

754.78609
733.35357
710.83722
639.51067
535.24849
513.26796
484.81895
372.56918
293.27047
51.983892
-84.93095
236.46079
985.87472
2093.2165
3254.3197
3504.0723
15078.66

=
=

CORRELATION BETWEEN REVENUE AND NO. OF ASSESSEES

1994-95
1995-96
1996-97
1997-98
1998-99
1999-00
2000-01
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10
Total

=3.8104246
= 46.092494
= 171.30658

=0.975372

The hypothesis number of taxable services is correlated with

number of service tax assessees stands accepted.
.
CONCLUSION:
1.From Table-1 it finds that Correlation coefficient between
revenue and number of services is 0.902429. It indicates that
the Revenue is directly and positively correlated with
number of services. As the number of services increases, the
revenue also increases.
2.From Table-2 it finds that Correlation coefficient between
revenue and number of assessee is 0.952253. It indicates that
the Revenue is directly and positively correlated with
number of assessee. As the number of assessee increases, the

Indian Streams Research Journal

A CORRELATION ANALYSIS OF SERVICE TAX IN INDIA

Vol.1,Issue.IX/Sept 11

revenue also increases.

3.From Table-3 it finds that Correlation coefficient between
Number of Services and Number of Assessees is 0.975372. It
indicates that the Number of Services is directly and
positively correlated with Number of Assessees. As the
Number of Services increases, the Number of Assessees also
increases.
.
REFFERENCES:
Text and References
1S.S.Gupta. 29th Edition 2010: Service Tax How to Meet
Your Obligations: Volume I and Volume II Taxmann's
Publication
2V.S.Datey. 15th Edition 2010: Service Tax Ready
Reckoner: Taxmann's Publication
3V.S.Datey 15th Edition 2010: Service Tax Manual:
Taxmann's Publication
4WIRC Reference Manual 7th Edition 2010-2011: Western
India Regional Council of The Institute of Chartered
Accountants of India, Mumbai.
5Various Service Tax Notifications, Circulars, Trade
Notices, Orders issued by the Central Government and
CBEC.
6Service Tax Online (1994-2010) with Service Tax
Computation
Journals and Reports
1Annual Performance Report 2004-2005: Directorate of
Service Tax, Mumbai Department of Revenue, Ministry Of
Finance Government of India.
2Annual Performance Report 2005-2006: Directorate of
Service Tax, Mumbai Department of Revenue, Ministry Of
Finance Government of India.
3Annual Performance Report 2009-2010: Directorate of
Service Tax, Mumbai Department of Revenue, Ministry Of
Finance Government of India.
Service Tax Websites
1.www.sevicetax.gov.in
Directorate of Service Tax Mumbai, Department of
Revenue, Ministry of Finance, Government of India
2.Central Board of Excise and Customs, Department of
Revenue, Ministry of Finance, Government of India
3.www.finmin.nic.in
Ministry of Finance, Government of India
4.Department of Revenue, Ministry of Finance, Government
of India
5.www.dgauditces.gov.in
Directorate General of Audit Customs and Central Excise
and Service Tax
6.www.taxmann.com
Service Tax Law, Incorporating the Complete Database on
Service Tax (1994-2010)

Indian Streams Research Journal