Finance minister Arun Jaitley may likely look into the service tax rate hike to 16-18% from the current 15% in the upcoming budget session, scheduled on February 1, as an effective measure for the GST rollout.
The tax experts believe that this move will make eating out, flying and phone bills and other similar services expensive as the service tax rate will come closer to the proposed tax slabs for GST.
GST will subsume all the indirect taxes like VAT, excise duty and service tax. The four tax slabs proposed for GST are 5,12,18 and 28%. It is taken as a logical move for the implementation of GST.
Tax experts say, Jaitley hiked service tax rate by 0.5% to 15% in his previous budget, may raise the levy one percentage point more to 16%. Also, if the expert opinion is to be believed then a higher service tax for April-June will help the government collect more revenue to meet several expenses on programmes and welfare schemes.
A service tax rate nearer to the GST rate will also help consumers avoid a higher price shock when the new sales tax is rolled out. While service tax until now is a central levy, it will be equally divided between the Centre and states under the GST regime.
In the last budget 2016-17, the Service tax was budgeted to provide Rs2.31 lakh crore, more than 14% of the Centre’s complete tax revenues of Rs.16.30 lakh crore. Service tax from 1 June 2015 was hiked from 12.36% to 14%. From 15 November 2015 onwards, a 0.5% Swachh Bharat Cess was levied on all services, taking the total rate of service tax to 14.5%. This will be the third time when Jaitley will hike the service tax.
