Budget may see hike in service tax

Finance Minister Arun Jaitley is expected to present a Budget on Wednesday that may give some tax concessions to the common man, but also take away a few in order to be financially prudent. High on the list of takeaways is an increase in service tax rates by a percentage point or two to align it with the proposed Goods and Services Tax (GST).

GST is likely to be rolled out by September. The tax slabs under GST are between 5% and 28%. Officials said the service tax rates have to be closer to one of the slabs for a smooth transition to GST. But the government is expected to move the needle slowly. With the Railway Budget forming a part of the General Budget from this year, an introduction of a new cess is also likely to give social security to around 20,000 railway coolies. The cess of 10 paise or so could be levied on the railway ticket. It has been a long-term demand from the government.

Among the major giveaways expected is a reduction in the burden on individual tax payers. Given that this year’s Budget is being presented in extraordinary circumstances when there is a lot of uncertainty around the globe aided by the US move towards protecting its trade and borders, the industry has demanded that the Budget give incentives to exports. The Budget would be critical to revive investment sentiments. While an uptick in the US economy and in large parts of the European markets is good news, India needed incentives to cope with the situation arising out of pro-protectionist voices from the US and the fallout of Brexit, said T S Bhasin, chairman, Engineering Export Promotion Council.

According to IMF data, India’s investment as a percentage of GDP in 2016-17 was lowest since 2003. Demonetisation has hit private investment and overall demand. To tackle this, Jaitley is expected to announce a slew of measures to up rural demand and low-cost rural housing. Incentives may also be announced on the construction of low-cost houses to achieve housing for all by 2022. Labour intensive sectors such as leather and gems and jewellery, hit by the note ban, may also get a stimulus.

A boost for digital payments is expected, while some taxes may be announced to discourage cash transactions. A roadmap for the crackdown on benami transactions and illegal gold buying may also figure in the Budget. Industry body CII has demanded measures in the Budget to minimise tax litigations and accelerate dispute resolution.