Is govt planning to hike service tax rate in Budget 2016?

Moneycontrol Bureau

While Arvind Subramanian's mid-year review on the economy makes a strong case for straying from the fiscal path to give a fillip to the economy and to meet public expenditure requirements, questions are being raised on whether such a move will be prudent in the long term. 

But this against the backdrop of implementation of the Seventh Pay Commission and One Rank One Pension (OROP) in the next financial year, also makes a case for rising government expenditure requirement.Finance minister Arun Jaitley, meanwhile, hopes to bring down fiscal deficit to 3.5 percent in 2016-17.

To meet the revenue needs, many believe the finance minister can most certainly raise the service tax rate by 2 percentage points — from current 14 percent to 16 percent — next fiscal year, considering that the Chief Economic Advisor Arvind Subramanian-headed committee has recommended a standard rate of 16.9-18.9 percent under the proposed goods and services tax (GST) regime, a Business Standard report says.

Since coming to power, the NDA government has already increased the service tax rate once. It was increased from 12.36 percent to 14 percent this fiscal year, along with an imposition of Swachh Bharat cess of 0.5 percent on all services from November 15.

The BS report also says that in the first eight months of the current financial year, the service tax revenue expanded by 25 percent over a year ago to Rs 1.27 lakh crore, or 61 percent of the Budget target of Rs 2.09 lakh crore. The report quoting unnamed sources also says that discussions and consultations are already on and services is an area that the government is looking at to meet revenue needs.