Service tax rate would be retained at 10%

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New Delhi: The consensus on tax rates developing around the goods & services tax (GST) means finance minister Pranab Mukherjee is unlikely to tinker with the service tax rate in the forthcoming Budget.

While discussions are still on between the Centre and the states on the final GST rate to be introduced from April 1, 2010, discussions at the last meeting of the empowered committee of state finance ministers on June 10 veered to a 16% rate for the tax. This would mean that the central and state GST rates would be at 8% each.

“We are looking at all options right now, and this is certainly one of them,” an official said. Keeping the service tax rate unchanged will provide stability to industry, which is hoping for more stimulus measures in Budget 2009-10, the official explained.

Finance minister Pranab Mukherjee in the interim Budget had brought down the general rate of central excise duty from 10% to 8% and reduced service tax rate to 10%. “It is also our objective that the dispersal between Cenvat rate and the service tax rate is reduced with a view to move towards the stated goal of a uniform goods & service tax,” Mukherjee had said.

Industry chambers, in their pre-Budget recommendations to the finance ministry, have sought an extension of these duty cuts into the rest of the fiscal, as most sectors are still reeling from the economic slowdown, although there are signs that the worst may be over. The index of industrial production (IIP) in April grew 1.4% in April this year, signalling signs of an economic recovery.

“Since GST is slated to be introduced from April 1, 2010 at a rate of about 16%, the chances of changing the Cenvat rate in the Budget seem remote. But since the total service tax rate under GST is expected to be a little higher than 16%, there could be a marginal hike in the rate,” said R Muralidharan, executive director, PricewaterhouseCoopers.