Eating out, using credit and debit cards, cabs and mobile phones have all become expensive, thanks to the hike in service tax in the Union Budget presented on Saturday. The government has increased the service tax to 14 per cent from the current 12.36 per cent.
“To facilitate a smooth transition to levy of tax on services, by both the Centre and the states, the service tax rate is being increased from 12 per cent plus education cesses to 14 per cent. The education cess and secondary and higher education cess shall be subsumed into the new service tax rate. The revised rate shall come into effect from a date to be notified,” Finance Minister Arun Jaitley said in his Budget speech as he explained the rationale behind the move.
The decision will now make several services including cable and DTH services, beauty parlour charges, courier service, laundry services, ordering stock broking, asset management and insurance more expensive. Packaged fruits and vegetables will, however, become cheaper as pre-cooling, ripening, retail packing and labelling of these items have been exempted from the service tax.
Further, the negative list of services has also been pruned by bringing some services under the tax net. Experts interpreted the tax hike as a step towards GST though a deviation from the recommendation of the 13th Finance Commission. “Increase in service tax rate suggests that the GST rate would not be the one single rate recommended by the 13th Finance Commission. It could now well be in the range of 20 per cent plus, which implies substantial exemptions from the GST base,” Satya Poddar, tax partner, EY India, said.
The government has also put an enabling provision in the Service Tax Act to empower the Centre to impose a Swachh Bharat cess on all or certain taxable services at a rate of 2 per cent on the value of such taxable services. The proceeds from this will be used for the Swachh Bharat initiatives.
Life insurance service provided by way of Varishtha Pension Bima Yojna, however, has been exempted from service tax along with the ambulance services and admissions to museums, zoos, national parks and wild life sanctuaries.
Negative service list
The list has been pruned, paving way for taxing services like access to amusement facility; entertainment events like concerts and pageants where admission fee is above Rs 500; service by way of carrying out processes for production or manufacture of alcohol; all service provided by the government to business entities; and construction, commissioning or installation of original work pertaining to an airport or port.