Proposal to levy Swachh Bharat cess of 2% on value of the services would effectively take the service tax rate to 16%
Services like dining in a restaurant, constructing a house and mobile phone use are set to become more expensive with the increase in service tax rate from 12% to 14% announced by finance minister Arun Jaitley in Budget 2015-16. The move will also make services including cable and DTH connections, beauty parlour charges, courier services, laundry services, ordering stock broking, asset management and insurance costlier.
However, packaged fruits and vegetables will become cheaper as pre-cooling, ripening, retail packing and labelling of these items have been exempted from service tax.
Krupa Venkatesh, senior director, Deloitte, said the proposal to levy a Swachh Bharat cess of 2% on the value of the services would effectively take the service tax rate to 16%. “This would increase the cost of services consumed by the common man,” said Venkatesh.
The rate increase is set to come into force from a date to be notified. Jaitley also subsumed education cess on the 12% excise duty and raised it marginally to 12.5% from the current 12.36%.
Prashant Singhal, global telecommunications leader, EY, said customers will have to pay more for telecom services with the increase in service tax and import duty on handsets. “Today, over 70% of mobile handsets are imported and with the rate of duty more than doubling – it would either force manufacturing in India or make the mobiles more expensive,” said Singhal.
Jaitley also addressed the problem of inverted duty structure by tweaking import duty on many items. To make a smooth transition to the proposed goods and services tax (GST) regime from April 1, 2016, the government brought several new items under the service tax net, which are presently covered in the list of exemptions or in the negative list.
Satya Poddar, tax partner, EY, said the divergence of the 12.5% excise duty rate and the 14% service tax rate would create complexities while the country is about to make a transition to GST. “Increase in the service tax rate to 14% suggests that the GST rate would not be the one single rate of 12% recommended by the 13th Finance Commission. It could now well be in the range of 20%+, which implies substantial exemptions from the GST base,” said Poddar.
Access to amusement facilities, admission to concerts, non-recognised sporting events and job work for production of liquor are among the items that have newly come under service tax. Jaitley also brought all services provided by the government to business entities under tax unless specifically exempt.
Jaitley, also sought to raise excise duty on items like cigarettes, tobacco products, packed condensed milk and peanut butter, making them more expensive.
“Excise duty is being increased by 25% for cigarettes of length not exceeding 65 mm and by 15% for cigarettes of other lengths. Similar increases are proposed on cigars, cheroots and cigarillos,”Jaitley said. Following the announcement, cigarette stocks, led by ITC, took a severe beating.
Leather footwear priced above R1,000 per pair has become cheaper on account of excise duty reduction to 6% from 12%. Similarly, inputs for manufacture of LED drivers has also been halved to 6%.
In order to push local manufacturing of commercial vehicles, Jaitley doubled effective tariff rate on imported commercial vehicles from to 20%.
Domestic steel producers got similar tariff protection from him as the basic customs duty on imported steel has been raised to 15%.