Going to a restaurant, a weekend trip, use of telephone and other outdoor spending will now cost you more as the finance minister on Friday announced an increase in the service tax from 10% to 12%, a move that was anticipated by the industry at large to bring down the fiscal deficit. Service tax is an indirect tax imposed on specified services called “taxable services”. Services such as travel-tourism, insurance, real estate and construction, account for nearly 60% of the economic activity, so price hikes in the services sector will affect overall prices.
“It was anticipated because of the high fiscal deficit, which the government wants to bring down to 5.1%,” said Harishanker Subramaniam, partner, indirect taxes (service tax and excise duty), Ernst & Young, an audit and consulting firm. The government has estimated that it will collect Rs 95,000 crore from service tax in the current fiscal and has pegged the next year’s target at Rs 1.24 trillion.
As per the proposals, all services will now attract a service tax, except 17 heads in the negative list. The services not under the negative list will attract 12% service tax.
This year’s negative primarily includes specified services provided by the government or local authorities, and services in the fields of education, renting of residential dwellings, entertainment and amusement, public transportation, agriculture and animal husbandry.
A number of other services, including healthcare and services provided by charities, independent journalists, sportspersons, performing artists in folk and classical arts are also exempt from service tax. The film industry will also get tax exemption on copyrights relating to recording of cinematographic films.
The move, however, will increase the cost of services, said industry representatives at a press conference called by the industry body, Federation of Indian Chambers of Commerce and Industry (FICCI), on Friday.
“Service tax widening is a welcome step. However, the increase will have an inflationary effect. This will bring inflation in manufactured goods and services industry,” said Harsh Pati Singhania, managing director, JK Paper Ltd.
Among services that will directly get hit are travel-tourism, insurance and construction. “The hospitality industry will be hit from the hike. Eventually, the cost of travel and services around travel will go up,” said Jyotsana Suri, managing director, Bharat Hotels Ltd.
However, to make the current tax structure simpler, the finance minister announced that on the lines of the proposed Direct Taxes Code (DTC), the government plans to come out with a Common Tax Code for service tax and central excise duty also in order to simplify the two indirect taxes.
As far as individual taxpayers go, marginal reduction in the rate of tax was good.
Dinesh Kanabar is a deputy chief executive officer and chairman-tax with KPMG India.
The Budget has been a non-event this time. It has belied the expectations of people who were looking forward to increase in tax deduction limits.
Rajesh Srinivasan is a leader, global employer services with Deloitte Touche Tohmatsu India Pvt. Ltd.
Overall it is a balanced budget with no big surprises other than that for the insurance industry.
Rajesh Sud is the CEO and and MD of Max New York Life Insurance Co. Ltd.
The shift of focus from curative to preventive healthcare was needed. In that sense, the deduction of Rs 5,000 is a positive.
Bhargav Dasgupta is the CEO and MD of ICICI Lombard General Insurance Co. Ltd.