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, though some more services like business class
domestic air travel and toll-plazas may have to pay 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 that 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 these 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 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. Sources
said the finance ministry was still examining whether 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. 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).
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