Service tax rate hike to 12%, wider net to fetch Rs 50,000 cr

All services other than 27 on the ‘negative list’ will be taxed

Finance minister Pr­anab Mukherjee is likely to raise service tax rate by 2 per cent to 12 per cent and introduce a negative list of services to widen the tax net in the forthcoming Union budget in order to mop up additional revenue of at least Rs 50,000 crore.

Service tax, which bought to the government kitty mere Rs 410 crore in 1994-95 when it was introduced, has grown substantially and is expected to garner Rs 82,000 crore this financial year, a growth of over 18 per cent. Indirect tax, comprising excise duty, customs and service tax, is estimated to garner Rs 3.92 lakh crore in 2011-12 and direct tax Rs 5.32 lakh crore.

Barring 2009-10, when it clocked negative 3.93 per cent, service tax has grown substantially every year ranging from 16 per cent to 106 per cent.

“A two per cent hike in service tax from the present 10 per cent is on the cards…Also negative list of services is likely this year, signalling soft launch of goods and services tax,” a government official told Financial Chronicle.

At present, the government follows a positive list approach to services taxation and 119 services are taxed, besides six other services, which were earlier merged with telecom services, taking the total to 125.

Service tax, which originally had five per cent rate, was raised to 8 per cent, in 2003-04, 10 per cent, in 2004-05 and then to 12 per cent in 2005-06.

In 2008-09, it was lowered to 10 per cent as part of the fiscal package to minimise the impact of global crisis on the Indian economy. Education cess is levied now on service tax taking effective rate to 10.3 per cent.

Introduction of a negative list is expected to increase service tax revenue by 25 per cent and another 2 per cent increase in the rate will bring in yet another 20 per cent, adding about Rs 50,000 crore, going by the mop up this year.

According to the concept paper on GST, barring 27 items on the negative list, all other services are to be brought under the service tax net and this would form the basis, the official said. The list of 27 items which are to be kept out of the tax net included services provided directly in relation to agriculture, horticulture, and animal husbandry and services largely provided by the small scale sector below a threshold.

Activities of political parties, religious bodies, non- air-conditioned second class rail travel, metro, monorail travel, public passenger transport, taxi and three-wheeler services, certain infrastructure projects, services rendered by individual journalists, Indian news agencies too, would be part of the negative list.

Government services, including postal, education, health, ports, security and insurance, will be exempted from the tax, apart from services such as funeral, burial and mortuary agencies. Others on the list are copyright, dramatic and artistic work, services provided by recognised political parties, advertisements, other than those published in newspapers and broadcast over radio or TV or displayed in other electronic media.

The official said the negative list proposed in the GST concept paper, which has been expanded from the earlier list of 22 to 27, would broadly be the services that would be exempted from tax. All other services would come under the tax net. This could include air-conditioned rail travel, beauty parlours and any other service that has not been covered so far.

“At this stage, no one can pin point exactly which are the new services that would be included, he said adding any service that is not taxed apart from the negative list would come into the net,” he added.

This would, however, be subject to fine-tuning “as we go along”, he said, apparently indicating there could be some litigation as well in taxing some of the services.

The official did not want to hazard a guess at this juncture on the new services that are likely to be taxed. Notification on new services came only a few months after the presentation of the budget, he said, adding, any service that is not taxed at the moment will come under the tax net if not mentioned in the negative list.

Over 60 per cent of India’s GDP comes from services sector but service tax accounts for less than 10 per cent of the total revenue and this means there is a huge potential for revenue growth.

Against 15 lakh service tax registrations, only six lakh are filing returns, the official said, adding, there would measures to tone up service tax administration.

Source : http://www.mydigitalfc.com