Get ready to pay more service tax
Your service tax liability could increase from 12% to 20% over the next three years.
By Sidhartha, TNN |
NEW DELHI: With government keen on ensuring that its coffers are unaffected due to the introduction of goods and services tax (GST), your service tax liability could increase from 12% to 20% over the next three years. The tax on goods is expected to fall only marginally from 33% at present to 30% in April 2010. The steep increase in service tax liability will significantly push up your phone bill, insurance premium and credit card payments.
| Proposal I | Proposal II |
| Single rate: 27.5% Problem: Difficult to have such steep increase in a three-year period | Goods: 30% Services: 20% |
According to the initial roadmap being prepared by the finance ministry, following finance minister P Chidambaram’s announcement in the budget, the average tax rate in India is estimated at 27.5% at present. The tax on goods, which includes VAT, excise, countervailing duty and the like, is estimated at 33%, amongst the highest in the world, while the government levies 12% tax on 90-odd services.
| Roadmap |
| • You could start feeling the pinch from next year if the proposal gets green signal National Development Council Consult states to ensure no revenue loss for the Centre and states • 13th Finance Commission to decide on sharing formula between Centre and states from 2010 |
While one option is to have a common GST of 27.5%, it is being viewed as a difficult proposition since service tax rates would have to undergo a revision, which may be difficult over a three-year period starting 2007-08. The second option is to have a two-tier system, though it was always believed that GST will be a single-rate tax in the 15-18% range.
‘‘The guiding principle for the states and the Centre would be no revenue loss though we will strive to keep the tax rate in the 17-18% range,’’ said a senior finance ministry official.
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Sources said the proposal was still at a drawing board stage and a lot of consultation was required before it could be implemented.
To start with, there is the question of sharing tax collected by the Centre. The issue is expected to be addressed by the 13th Finance Commission, to be set up next year, and its recommendations implemented from April 2010.
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