Tough luck: Service tax may double to 16%

BANGALORE: There is more bad news for service providers. The service tax rate, up to 8% in the Budget, could be hiked to 16% over the next few years, predicts S Madhavan, executive director and head - indirect tax practice of PricewaterhouseCoopers (PwC). Mr Madhavan was speaking at ‘Budget Analysis-2003’ organised here by economictimes.com and PwC.
“The FM has acceded to the request of the Kelkar task force which had suggested rationalisation of service and product taxes. The recent Budget is a step in this direction. The FM has also promised that there would be an amendment to the Constitution to allow states to levy service tax,� he added.
The Budget has also increased the scope of service tax by increasing the coverage to 10 additional areas including tutorials and AMC providers. Another notable feature of the indirect tax proposals, Mr Madhavan said, was the migration of taxation from transaction-based to a value-based system. On the implementation of value-added tax (VAT) from April 1, he said that it would eventually lead to a unified VAT mechanism.
Rathin Datta, chairman designate of PwC, pointed out to the anomaly on the marginal tax rates (MTR) with reference to individuals. MTR for individuals has risen compared to that for both Indian and foreign corporates operating in India (FCO). “The rise in MTR for individuals in India is something which is not happening globally,� he added.
Referring to the different tax rates for Indian corporates and FCOs, he said that the former would have to pay a higher rate of 43.158% as against 41% for FCOs. The situation worsened in case of a two-tier structure (comprising of an operating company and holding company) where the actual tax rate would be as high as 46.45%.
Rajat Jain, chief investment officer of IDBI Principal AMC, in his address said that despite the post-Budget nervousness of the sensex, the valuations remained strong.