Wider Service Tax Net May Nip Hard
The service tax net is likely to be stretched and more items will be brought under its ambit. Hotel room tariffs, domestic air travel (business class) and the premium on life insurance policies are probable services. While international business class air travel is already being taxed at 12%, the government has been considering levying service tax on business class domestic air travel for some time. Similarly, hotel rooms, booked for guests, may be included in the list. The government is also mulling levying service tax on the fund management fees or the investment part of life insurance policies. Service tax is already charged on the risk premium part of the life insurance policy and the government feels fund management fees should also be considered as a service and taxed. Simultaneously, states are also expected to levy service tax on five services, including private education and health services, amusement parks and notaries from the coming fiscal. This would mean that the current basket of 100 taxable services is set to be expanded to include at least another eight services. However, service tax rates are expected to stay unchanged at 12%. The government is not too keen to tinker with the tax rate until the report on the GST is finalized. Forthcoming elections in 10 states as well as the general elections in 2009 are also reasons why the government is not keen on hiking service tax rates. The government should be careful about including more services in the tax net.