Finance Minister Arun Jaitley is all set to present Union Budget 2017 in Parliament on February 1. Jaitley is expected to give away some goodies to compensate those hurt most by demonetization but largely, he has to walk a tightrope. On one hand, people are expecting populist measures, on the other hand he has to revive growth. The Finance Minister is likely to hike service tax rate to 16-18 per cent from the current 15 per cent. as a precursor to the Goods and Services Tax (GST) rollout in July.
If the decision to increase the service tax is rolled out, it will be the third time that Jaitley will raise service tax rate. On 1 June in 2015, service tax was increased from 12.36 per cent to 14 per cent. Swachh Bharat Cess of 0.5 per cent was levied on all services, which took the total service tax to 14.5 per cent from November 15, 2015.
The Finance Minister had imposed a Krishi Kalyan Cess at the rate of 0.5 per cent in last budget on all taxable services to take the levy to 15 per cent.
The move of increasing the service tax would be an attempt to take the rates closer to the proposed tax slabs for GST.
Things that are likely to get more expensive:
- Eating out
- Phone bills
- Electricity bill
- Electronic goods repair at service centers
- Car servicing
A host of other services will also get expensive.
GST, which will subsume central and state levies like excise duty, service tax and VAT, is scheduled to be rolled out from July 1.
The tax slabs decided for the GST are 5, 12, 18 and 28 per cent and taking service tax closer to one of the slabs is a logical move in the Budget, according to the tax experts.
Tax experts say Jaitley may raise the levy by at least one percentage point to 16 per cent.
Some others feel there could be different service tax rates with a lower 12 per cent for basic services and a higher 18 per cent for the rest.
A service tax rate closer to the GST rate will also help consumers avoid a greater price shock when the new national sales tax is rolled out.
While service tax until now is a central levy, it will be equally split between the Centre and states under the new GST regime. Most services, except essential ones like primary healthcare and basic education, will be covered by GST.
- With PTI inputs