Service tax rate may be raised to 14%

RUN-UP TO THE BUDGET

There is indication that the service tax rate may be increased from 12 per cent to possibly 14 per cent in the forthcoming Budget. Besides, 44 new items "" like lending services, sports and amusement parks "" are set to be brought under the service tax net.

At present, the service tax rate stands at 12 per cent. Added to this is a 2 per cent education cess, bringing the incidence to 12.24 per cent.

The move is a part of the compensation package agreed upon by the union and state governments for phasing out the Central Sales Tax (CST) levied on inter-state trade. This is being seen as a precursor to a hike in the service tax rate.

CST is collected by the Centre and its proceeds transferred to state governments. The Union government collects and transfers 30.5 per cent of service tax proceeds to states.

"This (the CST phase-out) is an indication that the service tax rate might go up. Last year, the finance ministry had said it would not raise the service tax rates. This year, there has been no indication till now that the rates will not be raised," said Ashok Dhingra, partner and head of indirect tax, Khaitan & Co.

Other services among the 44 new items that will attract service tax include health, hotel and lodging, electricity distribution, education, and artistic performances, including those by Bollywood stars.

Meanwhile, the Central Board of Excise and Customs today said domestic telecom operators providing services to international in-bound roamers will have to pay service tax from January 15. A decision is yet to be taken for the period prior to this date.

However, some segments, including industry chambers, which feel that the service tax rate will not be increased, want it to be reduced for select items of mass consumption.

The move towards phase-out of CST is seen as part of a strategy to eliminate multiple taxes and move towards a common tax "" the proposed goods and service tax (GST).

According to a tentative package agreed upon by the Centre and states, the tax collected on 77 services will be transferred fully to states.