Service tax may go up to 16%

To meet increased expenses due to the 7th Pay Commission outgo and the proposed one-rank-one-pension (OROP), the government may look up to raising service tax rates to 16 per cent across the board in the Budget this year, jacking up restaurant bills, air tickets and mobile phones bills further.

The service tax rates had gone up to 14 per cent last year from 12.36 per cent earlier. Subsequently, the government also imposed a Swachh Bharat cess of 0.5 per cent on all services late last year. Service tax was introduced in 1995 at 5 per cent.

Since then its share in the government’s tax revenue has continuously gone up and it is the highest revenue earner for the government in the indirect tax segment.

Government data shows that service tax collections have exceeded the target six times in the last 10 years. The government’s dependence has increased on service tax over the years as it is the most certain source of taxes with excise duty being an uncertain source.

Sources said, an increase in service tax rates will help in seamless transition to the Goods and Services Tax (GST) regime.

A committee headed by Chief Economic Advisor Arvind Subramanian on GST roadmap too recently recommended a standard rate of 16.9 per cent to 18.9 per cent under the proposed GST regime.

“The finance minister has room to increase service tax to shore up revenues,” sources said.

There are chances of raising the Swachh Bharat cess further from 0.5 per cent but the government may take this step sometime after the Budget is presented.