Thaindian News

New Delhi, March 16 (IANS) Union Finance Minister Pranab Mukherjee Friday proposed to raise the service tax rate from 10 percent to 12 percent, expecting to mop up an additional revenue of Rs.18,660 crore.

The minister proposed to tax all services except those in the negative list which comprises 17 heads drawn up keeping in view the “federal nature of our polity, the best international practices and our socio-economic requirements”.

Tax experts and industrialists welcomed Mukherjee’s approach to the service tax and the exemptions given on the basis of a negative list, but opined the widening of the base would lead to all round price escalation.

“Looking at our vast commitments and to maintain a healthy fiscal situation, I propose to raise the service tax rate from 10 percent to 12 percent, with consequential changes in rates for services that have individual tax rates,” Mukherjee said in his budget speech for 2012-13 fiscal.

“My proposals from service tax are expected to yield an additional revenue of Rs.18,660 crore. Keeping in mind that the share of services in GDP is 59 percent, you would agree that the proposed increase is not too harsh,” Mukherjee told Lok Sabha members.

He emphasised on the need to widen its base as its share in taxes was far below its potential. Also, service tax and central excise have to be brought as close as possible to reach the eventual goal of transition to Goods and Services Tax.

In this respect, Mukherjee pointed out that the government has received “overwhelming support” on the desirability of moving towards taxation of services based on a negative list.

“It has been perceived both as sound economics and prudent fiscal management.”

He proposed to raise the exemption for the monthly charges payable by a member to a housing society from Rs.3,000 to Rs.5,000.

As 2012 marks the beginning of the centenary of Indian cinema, Mukherjee proposed to exempt the industry from service tax on copyrights relating to recording of cinematographic films.

The finance minister proposed to set up a study team to examine the possibility of a common tax code for service tax and central excise which could be adopted to harmonise the two legislations.

He also announced a new scheme that would simplify refunds without resorting to voluminous documentation or verification. As an added incentive, such refunds will also be admissible for taxes on taxable services that have been exempted.

He said rules pertaining to the point of taxation were also being rationalised, providing greater clarity and removing the irritants, while Cenvat credits in a number of areas are being restored.

Sanjiv Goenka, Chairman of the RP-Sanjiv Goenka Group described as a “rational approach” the widening of the service tax base with a negative list of 17 socially desirable services but said it will lead to price escalation.

“The increase in service tax, along with the increase in excise duty, from 10 to 12 percent will, however, raise prices correspondingly all round. However, this measure is a better alternative to a higher budget deficit which in spite of the additional revenue of Rs.41,000 crores, will leave a deficit of 5.1 percent in 2012-13,” he said.

Former Chief Commissioner of Customs, Central Excise and Service Tax Biswajit Datta said: “Till now the share of service tax in the total tax kitty was disproportionately low considering the sector’s contribution to the country’s GDP. The finance minister has made an attempt to increase the share.

“This year he brought a major change in the service tax arena by stating that the tax will be levied in general for all services excluding the negative list,” he said.