Union Budget 2015: Jaitley proposes to hike service tax rate to 14%

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Moneycontrol Bureau

Finance minister Arun Jaitley has proposed to hike service tax rate to 14 percent from 12.36 percent to be effective by April 1, 2015. The government was expected to hike service tax rate this time.

A two percent service tax rate hike could have yielded over Rs 30,000 crore to the cash-starved government. A service tax rate change would have needed amendment in the Finance Act.

He has also proposed to exempt service tax extended to pre-cold storage warehousing, while also proposing to withdraw service tax exemption on mutual funds agents to AMCs.

Another proposal is to extend concessional withholding tax of 5 percent on FPI debt investments by 2 years. This is a positive for FDI in India too with government proposing to do away with the distinction between the two.

The industry also felt that the government may prune exemptions on service tax to broaden the tax base and tweak the negative list and mega exemption list on service tax. The government had tweaked service tax exemptions in the negative list in the July Budget as well. As of now, 39 services are completely exempt from service tax.

The industry was also hoping for clarity on certain areas such as taxability of liquidated damages/penalties recovered under contractual arrangements (e.g. breach of contractual terms), activities undertaken by employers for its employees (e.g. provision of amenities such as food, cab, etc.), taxability of food and beverage supply by way of take-away/ off the counter/ home delivery.

Highlights of Budget 2014

• Tax proposals on the indirect taxes side are estimated to yield Rs 7525 crore.
• Indian customs single window project to facilitate trade, to be implemented.
• To broaden the tax base in Service Tax, sale of space or time for advertisements in broadcast media, extended to cover such sales on other segments like online and mobile advertising. Sale of space for advertisements in print media however wouldremain excluded from service tax. Service provided by radio-taxis brought under service tax.
• Service tax exempted on loading, unloading, storage, warehousing and transportationof cotton, whether ginned or baled.