New Delhi: Finance minister Arun Jaitley may choose to hike service tax in the forthcoming Union Budget by one per cent, a move that may boost the government’s revenue collection but will hit the middle class hard while it is still trying to recover from the shock of demonetisation.
Service tax of 15 per cent is now imposed on all services except a small negative list. Any increase will push up the prices of mobile services, train and flight tickets, eating out, insurance premiums, cost of under-construction flats and DTH, among many others.
Service tax includes the Swachh Bharat and Krishi Kalyan cesses.
The idea, sources said, is to bring service tax, now at 15 per cent, closer to the GST rate of 18 per cent. This, they claim, will help in the transition from one tax regime to another. “The proposal is on the table and is being discussed. All pro and cons of changing the tax rate months before the implementation of GST are now being considered,” a source said.
Some experts note that consumers will face a steep hike in some cases, like restaurant bills, which are subject to both service tax and VAT, imposed by states. Both VAT and service tax will be subsumed in the GST when it comes into force.
An increase in service tax in the Union Budget on February 1 will provide additional revenue to the Centre till GST is rolled out, possibly in July, a boon as there has been a dip in revenues due to demonetisation.
As of now, only the Centre has the power to levy service tax. But once GST is in force, the revenue will be shared by both the Centre and the states. GST is proposed to be rolled out from July 1, and will subsume service tax along with other indirect taxes.
Services under GST are expected to be taxed at the rates of 12 and 18 per cent, with most services likely to come under the 18 per cent ceiling. The GST Council approved a four-tier GST rate structure in the country — of five per cent, 12 per cent, 18 per cent and 28 per cent.
On four demerit items — luxury cars, aerated drinks, pan masala and tobacco — that are now taxed at around 40-65 per cent, there will be an additional cess over and above the highest GST slab of 28 per cent for a maximum of five years.
