BUDGET 2008 is likely to spare people a hike in the service tax rate. Under considerable pressure to deliver a people-friendly Budget, the government may leave the service tax rate unchanged even though some more services like business class domestic air travel and toll plazas could be subjected to service tax. The current service tax rate is 12%.
Sources said policy makers at the highest level were against any tinkering with the service tax rate. The fear of a rise in inflation has not subsided and the likely consensus at top levels is that the government cannot not take a chance with anything which could increase inflationary pressures. This is more so because this is the last full Budget of the United Progressive Alliance government. Also, 10 states will be going to the polls this year.
While the focus in this Budget would be on consolidation and redefining some services to bring about more clarity, the finance ministry was examining some new services which it could bring under the tax net, sources said.
Business class international travel is already subject to service tax. The ministry now favours bringing business class domestic travel also under the service tax net. Toll plazas on national highways could also be subject to service tax. Various field formations have conducted surveys for collecting data on this services in the past year. A recommendation to bring this service under the tax net was also made by the Directorate General of Service Tax.
Some services like tourism, business auxiliary and business support could be consolidated to ensure that any confusion or overlap in categories is not used to avoid taxes. Redefinition of import and export of services, which continues to be a grey area leading to litigation, is also being looked at. The finance ministry had initiated this exercise last Budget, when it had brought all telecom services under one head.
Besides, the services which are to be transferred to states as a part of their compensation package towards central sales tax phase out, which include amusement parks, coin-operated machines, legal documentation and certification services, are also set to come under the tax net. However, sources said the finance ministry was still examining if other services like pre-school education, higher and technical education and healthcare, which have also been offered to states can be brought under the service tax net this Budget. The 2009 Budget is likely to be a vote on account since the term of the present Parliament ends in May 2009.
Services account for 50% of the country’s gross domestic product. But, service tax collections contribute less than 10% to the government’s tax kitty. The government is expected to collect Rs 50,200 crore from service tax in 2007-08 (Budget estimate).