The government is likely to reward the middle-class for the record rise in tax receipts. The finance ministry is unlikely to hike service tax rates in Budget 2008-09, letting it continue at the existing rate of 12%, instead. This will be the second year in a row that these rates would be left untouched.
However, more services will probably be brought under the tax net. The list is being fine-tuned by the finance ministry. At present about 100 services are taxed by the government.
North Block mandarins are already poring over the trends in weekly tax collections and they are satisfied with the figures coming in. A final call on the matter will be taken in early January and the tax receipts would be evaluated on a daily basis. Sources in the finance ministry said the brief is to leave the rates untouched.
The government is planning to ring in the goods & services tax (GST) regime by 2010. Under GST, the rates for both excise and service tax have to be finalised. The government is, therefore, not keen to disturb service tax rates until the GST road map is finalised. This is likely to be firmed up only in the next financial year.
Service tax rates have remained stable since 2006-07 when it was increased from 10% to 12%. However, an increasing number of services have been brought under the tax net, with this fiscal also bringing in the controversial service tax on commercial rental of property. Service tax collections to October this fiscal grew 35.3% to total Rs 25,420 crore. North Block expects to earn Rs 50,000 crore from the tax this year.
Pratik Jain, director (indirect tax), KPMG, said, ?It will be a good move to not increase service tax rates in the coming Budget. Any changes in the existing tax rates should be done carefully to align it with the rate of GST, which is not decided.?