NCAER sees 1% service tax hike annually

New Delhi, March 22 | Updated: Mar 23 2006, 05:30am hrs
Economic think-tank National Council of Applied Economic Research (NCAER) has said that service tax will go up by 1% per annum in the next four years, following the governments decision to introduce goods and services tax (GST) from April 1, 2010.

The roadmap for service tax is clear. It will gradually go up and align with the highest Cenvat rate of 16%, and one can expect an average service tax rate increase of 1% per annum, NCAER said in its monthly report.

The contribution of service tax to the exchequer would be consistent with its contribution to gross domestic product once the scope of service tax is increased on all services and aligned with the highest Cenvat rate, it added.

The report welcomed the finance ministers announcement that India would move towards a national level GST from April 1, 2010. This is important, as in our view, this gives a policy direction for indirect taxes, it felt.

On the implications of the Budget for growth, the report said that with the lowering of excise duties and the reduction in customs duty on non-agricultural products, the consumption growth would not come down.

It also held that prices of manufactured products would remain stable.

Although, a countervailing duty of 4% is levied on virtually all imports, the full crediting of this duty will be allowed to manufacturers of excisable goods. This will ensure stable prices of manufactured products, the report said.