SERVICE tax has always been the government’s favourite pick when it comes to generating additional revenue.
Introduced in 1994, service tax was applicable at 5%, which later went up to 8% and, then, 10%. It was raised to 12.36% and, now, is applicable at 14%, effective June 1. What comes as a respite, though, is that education cess @ 2% and secondary and higher education cess @1% have got subsumed in the new service tax rate, thus bringing down the effective increase.
Normally, it’s the consumer who bears the economic burden of indirect taxes. Thus, any increase in the rate of indirect tax would mean a consequent increase in his bills. Let us look at how it impacts the end-consumer.
Routine utility bills
Service tax applies to all services (except specified ones falling under the negative list or services exempt from tax). Landline, mobile phone bills, internet services, cable operators / DTH bills will marginally go up by 1.64%. Fortunately, power bills are out of the purview, with electricity qualifying as ‘goods’ and not ‘services’.
Financial services to be costly
Financial services like banking, credit card services, ATM, broker services and demat services attract service tax, and cost will marginally go up on these services as well.
Travel cost to go up
Today, travel by almost all modes (road, rail, air, water) attracts service tax (with certain exceptions). An increase in the service tax rate on travel cost will undoubtedly add to daily household expenditure. To top it, the government has introduced certain amendments, adding to the burden.
For instance, in case of travel by air, the government has — effective April 1– amended the law to provide that in case of travel by business class, the value of taxable services will be 60% of air fare (against 40% applicable in the past).
Travel by air in economy class is retained at 40%. Also, air travel agents’ bills will marginally go up.
Hike in insurance premiums
Life insurance premiums currently attract service tax at 3% in the first year and 1.5% of the premium in subsequent years. With the proportionate increase in above rates, for all traditional life covers, service tax rate will increase from 3% to 3.5 % for first-year premiums and from 1.5% to 1.75% for subsequent years. Similarly, for all other insurance types, service tax will go up from 12.36% to 14%.
Weekend outings: shell out more
Be it restaurants, online shopping or hotel accommodation, all bills will go up. The government has further widened the tax base to cover additional services: Gaming devices, amusement parks, water parks, theme parks; admission to specified entertainment events. Also, no more cheap taxi rides as services of aggregators managing the apps have been brought under the service tax net.
New cess coming your way
The government has proposed to introduce Swacch Bharat Cess applicable at 2% of the value of notified services.
Once applicable, the tax cost on certain specified services availed by the consumer will go up by 16% against the prevailing service tax rate of 12.36%.
The writer is senior director, Deloitte in India