Hit the road

As the finance minister who first thought of taxing the transport sector, it would be interesting to see if P Chidambaram tries in the forthcoming Budget to reintroduce his service tax proposal, especially since he knows that strike-happy transporters have managed to beat back such attempts by successive finance ministers.

If Mr Chidambaram does decide against taking on the transport sector, it would be a pity — for the gains to be had from extending the service tax to transporters are huge. At around Rs 1,60,000 crore, the turnover of the road transport sector would yield, at 8 per cent, service tax revenue totalling Rs 12,800 crore.

And since a similar tax will have to be levied on goods transported by rail, this will yield another Rs 2,200 crore. When seen against the total service tax target that currently exists, of about Rs 13,000 crore, the attractiveness of this proposal becomes obvious. Goods consumed by the common man, such as foodgrains that are moved by rail, could be exempted if the idea is to become politically saleable.

What are the chances that the finance minister will be able to collect the tax, given the truckers’ penchant for going on strike? For an answer, it is important to make a distinction between truckers (of whom there are between 1 million and 1.5 million) and transporter firms (no more than 30,000-40,000), who usually take orders from clients and then hire trucks to get the job done.

In the past, those transporters who were supposed to pay the tax managed to get the truckers to go along with them by agitating against diesel price hikes. But since the government has never rolled back the hikes, the agitating unions usually threw in more unrelated demands, and then claimed victory while calling off their strikes.

Recall that the strike in 2000 was called off within a day, and there were plenty of truckers plying their vehicles within a few days of the 2003 strike. Both suggest that the transporter-trucker union is not strong.

While it seems foolhardy to bring in a service tax when another diesel price hike is on the cards, the move could work if the government plays its cards right.

For one, if the Budget rationalises duties on petroleum products in view of the windfall revenue boost provided by record prices for crude oil, the truckers will have less reason to strike if the eventual price hike appears reasonable in comparison to global price hikes.

Second, if a lower service tax, say 4 per cent, is charged on truckers/ transporters with a turnover below a specified amount, getting them to go along with an all-India strike will be that much more difficult.

Tapping the transport sector is important from another point of view. Getting transporters into the tax net will give the taxman a good fix on the taxable operations of the manufacturing/trading sector, and this will serve as a check on potential evasion in those sectors. It’s time for the taxman to hit the road, literally.