Get set for price hikes as service tax rate to soar 16% in Budget 2016: Top 5 points to note
Budget 2016: The rate of service tax could go up to a flat 16% from an effective 14.5% now in the coming Budget 2016, to be presented by FM Arun Jaitley, but the government would try to soften the resultant blow to businesses and consumers
February 15, 2016 14:09 IST
Budget 2016: The rate of service tax could go up to a flat 16% from an effective 14.5% now in the coming Budget 2016, to be presented by FM Arun Jaitley, but the government would try to soften the resultant blow to businesses and consumers. Govt may allow broadening credit base and an increase in the turnover threshold for the tax net, from Rs 10 lakh at present to Rs 25 lakh. The rate hike, in step with the need to align the service tax with the proposed GST rate of 18-20%, would still yield significant additional revenue to the government. (Express photo)
Budget 2016: If the tax is hiked to 16%, it would mean a rate rise of over 3.5 percentage points in a short span of nine months. Since the service tax’s launch in 1994, at a rate of 5% on a small set of services, the steepest rate hike previously was in 2003-04. On June 1 last year, the rate went up from 12.36% to a flat 14% (in the process, eduction and higher-eduction cesses were subsumed in the rate) and 0.5% Swatch Bharat cess was levied on November 1. Spending on almost all intermediary services — those which are not consumed by end-consumers but by businesses for value addition — would be treated as legitimate business expenditure and allowed as credit, the sources added.
Budget 2016: The enhanced opportunities for availing credit for the taxes paid on input services would help a whole range of industries including construction and professional services firms and taxi operators, analysts said, as these businesses are now suffering from an accumulation of input tax expenses. Budget 2016 would also take forward the policy of integrating the tax on goods and services and extending credit of service tax and excise duty across goods and services, outlined in Budget 2004 by then finance minister P Chidambaram.
Budget 2016: Finance minister Arun Jaitley may also extend the facility of refunds on special additional duty — levied at 4% — paid on imports, which is currently being made to importer-traders to the manufacturing industry as well. A large segment of the manufacturing industry is now unable to get full credit for the SAD paid on inputs because their value addition levels are not high enough for such set-offs. The SAD — which is levied on imports in lieu of the state VAT on domestic goods — could also be reduced on number of intermediate goods, the sources said. (Reuters)
Budget 2016: The government had moved to the negative list approach for taxing services — which means all services except a select few are taxed — in July, 2012. With the tax being comprehensive and the rate hiked, it has budgeted for a 25% increase in service tax collections this fiscal to Rs 2.1 lakh crore and this target seems about to be achieved.