Finmin divided over CBDT proposal to cut service tax

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SummaryThe Central Board of Direct Taxes has made a strong case before the Service Tax Administration to slash the 12% levy only for the final consumer so as to help boost consumption and, consequently, corporate tax revenue.

to guard against a rate cut. Unlike direct taxes, indirect taxes including service tax is unaffected by the tax residency of the individual or the company that consumes the service and, therefore, is a more reliable source of revenue to the exchequer. An individual consuming a service here needs to pay service tax irrespective of whether he had stayed 182 days in India or not in the previous year.

But the call for a reduction in the service tax for the final consumer is getting louder within the finance ministry as such a step may leave more money in the hands of the common man to consume more, thus boosting the economy. The common man bears the impact of all indirect taxes including excise, customs and service tax that gets built into a purchase. Since he does not get input tax credit, there is a case for moderation in the rates, goes the thinking. It is not fair to burden one class of assessees too much, according to some in the government.

Service tax, which accounted for only 5.3% of the total indirect taxes in 2003-04, has now grown to be 23.5% of the indirect tax receipts in 2011-12 at Rs 95,000 crore. The ministry expects it to touch Rs 1,24,000 crore this fiscal.

Direct contest over indirect tax

* CBDT proposes to slash 12% levy for final consumer to help boost consumption

* CBDT also feels need to cut service tax rate to 8% to introduce the proposed GST

* In FY13, India may collect R5.6 L cr from direct taxes & Rs.5.1 L cr from indirect taxes

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