Net cast wider, rate left untouched

BUDGET & GOVERNMENT

Asset management companies selling ULIPs, stock exchanges included in the list of taxable services.

The service tax net has been widened further to include four more services, including the service provided by asset management companies selling unit-linked insurance plans (ULIPs) and stock exchanges. This has expanded the list of taxable services from 100 to 104.

The Budget estimate for service tax collections is Rs 64,460 crore for 2008-09, as against the revised estimate of Rs 50,603 crore for 2007-08, a growth of 27.3 per cent.

"Fifty-five per cent of the country's gross domestic product (GDP) is contributed by the service sector, which is a growing sector that must contribute its legitimate share to the exchequer," said Finance Minister P Chidambaram.

However, Chidambaram did not tinker with the service tax rate of 12 per cent.

Service tax is being imposed on the asset management service provided under ULIPs to bring it on a par with the asset management service provided by the mutual fund industry.

Services provided by stock and commodity exchanges and clearing houses will be taxable from a date to be notified after the enactment of the Finance Bill, 2008. The right to use tangible goods in cases where value-added tax is not payable will henceforth come under the service tax net.

Customised software will be taxed at 12 per cent, that is, on a par with packaged software and other IT services. Tax will also be imposed on services provided in relation to Internet telecommunication.

Chidambaram has also expanded the scope of some services to include money changers, persons running games of chance and tour operators using contract carriage vehicles as taxable services.

In a significant move, the finance minister also raised the threshold limit of exemption for small service providers from Rs 8 lakh per year to Rs 10 lakh per year. As a result, about 65,000 small service providers will go out of the tax net.

Accommodation in a hotel in India provided by a person located outside India to a person located outside India will be exempted from service tax from March 1, 2008.

Similarly, 75 per cent of gross amount charged as freight for services provided in relation to transport of goods by road in a goods carriage by a goods transport agency, will be exempt from tax.

In another significant development, the works contract rules are being amended to enhance the rate prescribed for optional scheme for payment of service tax under works contract service from 2 per cent to 4 per cent for the total value of the contract. The above change will be effective from March 1.

Services provided from outside India through Internet or electronically in relation to goods or material situated in India at the time of the provision of service will be considered as import of services and will be liable to service tax.

The Central Board of Excise and Customs has been empowered to frame a scheme for preparation and filing of service tax returns through service tax return preparers. This will be similar to the tax return preparer scheme for income tax.