New Delhi, March 16: Finance minister Pranab Mukherjee today proposed to increase the service tax rate to 12 per cent from 10 per cent and broaden the service tax net to cover all services except for a small negative list.
I propose to raise the service tax rate from 10 per cent to 12 per cent ... My proposals from service tax are expected to yield an additional revenue of Rs 18,660 crore, Mukherjee said while presenting the budget.
The government has estimated to collect Rs 95,000 crore from service tax in the current fiscal and has pegged the next year's target at Rs 1.24 lakh crore.
I propose to tax all services except those in the negative list. The list comprises 17 heads and has been drawn up, keeping in view the federal nature of our polity, the best international practices and our socio-economic requirements, Mukherjee said.
The services not under the negative list will attract 12 per cent tax. With the GST hit by a political roadblock from BJP ruled states, finance ministry has kick-started the process by simply broadening the service tax net.
The services that comprise the negative list include those provided by the government or local authorities, except a few specified services where they compete with the private sector.
The list also includes pre-school and school education, recognised education at higher levels and approved vocational education, renting of residential dwellings, entertainment and amusement services and a large part of public transportation including metered cabs, and agriculture and animal husbandry.
Movement towards the negative list will result in reducing nearly 290 definitions and descriptions in the Act to 54, and the exemptions from the existing 88 to 10, Mukherjee said. He also announced a list of services which are exempted from service tax. This include health care, services provided by charities, religious persons, performing artists in folk, sportspersons and classical arts.
Also individual advocates providing services to non-business entities, independent journalists, and services by way of animal care or car parking will be exempt from tax.
Further, Mukherjee also proposed to exempt the film industry from service tax on copy rights, relating to recording of cinematographic films.
On service tax on life insurance services, if the entire premium is not towards risk cover, the first year's premium shall be taxed at the rate of 3 per cent.
Subsequent premia shall attract tax at the rate of 1.5 per cent, he said adding availment of full cenvat credit is being allowed.
Transport of passengers embarking in India for domestic and international journey by air would attract an ad-valorem rate of 12 per cent, with abatement of 60 per cent in case of economy travel.
The dual rate structure of maximum service tax of Rs 150 and Rs 750 in case of economy class travel has also been proposed in the Budget.
At current prices, the contribution from services during 2010-11 works out to about Rs 50 lakh crore. However, the total collection from service tax during 2010-11 was over Rs 70,000 crore.
Analysts say introduction of GST, which simplifies product taxes by scrapping large numbers of state taxes, levies, could spur GDP growth by 1-1.5 per cent annually, besides bringing in more money into state coffers. Earlier introduction of VAT saw most states experiencing a tax buoyancy with producer states including Maharashtra, Karnataka, Gujarat, Tamil Nadu and West Bengal gaining the most.
The original deadline for rolling out the nation-wide tax rule, of April 1, 2010 has already been missed, and is unlikely to be met by April 1, 2012, the new deadline set by the government.