Hike in service tax on the anvil

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A hike in service tax rates and removal of exemptions from excise for several consumer items to move towards the Goods and Services Tax (GST) regime are on the cards in the upcoming Budget.Changes in indirect taxes, excise, customs and service tax are expected as the government moves towards the proposed GST rate structure of 17-18%.

Broking house Kotak Securities said in a research note that it expects the service tax rate to go up by 200 basis points to 16%, to bring it in line with the proposed GST rate of about 17-18%.

It also expects excise duty to be imposed or increased on several goods, especially in some consumer goods such as green tea, dairy spreads, yoghurt, cheese, ice-cream, frozen food products, pasta, ready-to-eat foods, packaged fruit juices and soya milk.

These could see excise duty kicking in or going up to the standard rate of 12.5%. Many of these products currently attract nil-6% excise duty.

Around Diwali last year, mobile bills, eating out, travel and many more services had become more expensive as the government levied a Swachh Bharat Cess of 0.5% on all services liable for service tax.

The current service tax rate is at 14.5%.The panel headed by Chief Economic Adviser Arvind Subramanian had proposed a standard rate of 17-18% for GST. The GST Bill is stuck in Parliament but the tax rates are converging towards the band suggested for eventual migration and implementation.

The report by the Chief Economic Adviser has underlined the fact that the GST also represents a historic opportunity to rationalize the tax system that is complicated in terms of rates and structures and has become an “Exemptions Raj,” rife with opportunities for selectivity and discretion.

It has estimated exemptions at Rs 3.2 lakh crore.In a note, Motilal Oswal Securities pointed out that changes on the indirect tax front are expected to be in consonance for eventual migration to GST.

“Thus we expect, around 100-150 basis points increase in service tax rate, a significant pruning of existing 100 odd items from the exempted list and raising of threshold limit for service tax to Rs 25 lakh”, it said. It said the minimum threshold for applicability may be raised to Rs 25 lakh from Rs 10 lakh keeping in view evolving GST levels.HSBC Securities said in a note,

“Even as we await the GST, we expect the government to embark on the process of removing exemptions and concessions from excise and custom duties. We also expect an increase in the service tax (currently at 14.5%) in preparation for the GST rollout,” it said.

The government will meet the current year’s revenue collection target through a strong upswing in indirect taxes such as excise, customs and service tax.

The latest tax revenue numbers up to January 31, 2016 indicate a healthy growth of 33.7% in indirect tax and 10.9% in direct tax collection.

As far as indirect tax collection is concerned, the government may get more than Rs 40,000 crore over the target.Of the Rs 14.49 lakh crore tax revenue target set for 2015-16, Rs 7.97 lakh crore was estimated to come from direct taxes (corporate and income tax) and another Rs 6.47 lakh crore from indirect taxes (customs, excise and service tax).

Source: http://www.tribuneindia.com/news/business/hike-in-service-tax-on-the-anvil/198466.html

One Reply to “Hike in service tax on the anvil”

  1. viji says:

    The ultimate consumer will be burdened if the increase in rates, removal of exemptions etc happen without GST introduction. They cannot happen is isolation. Already increase in service tax, restriction in cenvat etc introduced since last budget with assurance of GST going to happen in April 2016. But now it seems like GST may be pushed to April 2017. Any further burdens like increase in rate, pruning credit, removing exemption will hit hard on the consumer who is already bearing the brunt. The above changes & GST introduction need to go hand in hand for creating a robust economy & passing on the benefit to the ultimate consumer.

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