With GST set to be rolled out from July 1, Finance Minister Arun Jaitley in his Budget 2017 announcements on February 1 is not expected to tinker much with excise duty on manufactured goods. But some tax experts expect that service tax rate could be hiked to align with the proposed goods and services tax or GST rate. If the service tax rate is hiked, it could make flying, eating out, phone bills and a host of other services expensive.
“It will be interesting to see whether the finance minister chooses to hike service tax by 1 percentage point in order to align it with the GST,” says SMC Securities in a report.
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.
Some experts feel that Mr Jaitley may not touch indirect taxes, including service tax, in the Budget due to the forthcoming rollout of the GST tax regime. “With the Goods and Services Tax (GST) likely to be implemented from July 1, the budget may not touch upon any of the indirect taxes,” market expert Ambareesh Baliga wrote in a blog post.
GST, which will subsume central and state levies like excise duty, service tax and VAT, is scheduled to be rolled out from July 1. With tax slabs for GST decided at 5, 12, 18 and 28 per cent and taking service tax closer to one of the slabs is a logical move in the Budget, say tax experts.
According to tax experts, Mr Jaitley may raise the levy by at least one percentage point to 16 per cent. At the same time some tax experts believe that Mr Jaitley could go for different service tax rates – a lower 12 per cent for basic services and a higher 18 per cent for the rest.
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.
If the service tax rate is raised in the Budget, this will be the third time that Mr Jaitley will raise service tax rate. Service tax from June 1, 2015 was hiked from 12.36 per cent to 14 per cent. A 0.5 per cent Swachh Bharat Cess was levied on all services, taking the total incidence of service tax to 14.5 per cent from November 15, 2015. In the last Budget, he imposed a Krishi Kalyan Cess at the rate of 0.5 per cent on all taxable services to take the levy to 15 per cent. (With Agency Inputs)