Moving to a combined GST, 15 more services in tax net

Rates hiked to 12% to align with excise eventually.

With total service tax collections just around 2.5 per cent of the service sector GDP (less government services which cannot be taxed), Finance Minister P Chidambaram plans to focus more strongly in this area, and in 2006-07 itself, hopes to hike collections here to Rs 34,500 crore, a 50 per cent hike over the revised estimates for 2005-06.

A date has been set for the eventual Goods and Service Tax (GST), the first of April 2010, and since that means both the service tax and excise tariff rates have to be aligned, Chidambaram took the first step towards that and increased the service tax rate from the existing 10 per cent to 12 per cent "" since the Cenvat rate of excise is 16 per cent, this is expected to increase in coming years.

Another 15 services have been brought under the service tax net this year, taking the total number of services that are taxable to 96. The new services taxed include cruise travel, business and first class air travel, transportation of goods by containers and Internet telephony among others.

Other new services to be included under service tax are automatic teller machine operation and maintenance, business support services, Internet telephony services, management, registrars, share transfer agents and bankers.

Services like sale of space or time for advertisements other than in the print media, sponsorship of events by companies other than sports events, ship management services, credit card, debit card services, auctioneer services and public relations services will also attract higher rate of 12 per cent service tax.

Exemptions have been withdrawn for various taxable services provided by call centres and medical transcription centre, by outdoor caterers to trains and in academic or medical institutions, by management consultant for enterprise resource planning software system and by chartered accountants.

The exemption with respect to general insurance services where premium is received from both domestic and overseas re-insurance and all business for which premium is booked outside has also been removed.

The government has, however, provided exemptions on the difference between the installment paid towards the repayment of the leased amount and the principal for financial leasing services including equipment leasing and hire purchase.

The government has also expanded the scope of many existing services by replacing the term commercial concern with "person".

It also clarified that banking and other financial services included transfer of money through different modes and service provided as banker to an issue and that the technical services include clinical testing of drugs.