Service tax changes

Union Budget for 2017-2018 is going to be one of the toughest budgets of all time. This budget, which is due to be presented today from 11 AM onwards, is historic for several reasons which are summed up below:

Service tax changes

  • This budget will break a long-standing norm of budget presentation at end of February. Breaking free of Imperial norms, budget is all set to be presented on first day of February. However, death of parliament’s sitting MP may lead to a delay of 1 day budget presentation. This has not been decided yet.
  • This budget, since it will be presented ahead of time, is based on less economic data, making it difficult for Finance Minister Arun Jaitley.
  • This budget will see the end of 92-year old practice of creating separate budget for Railways. Railway budget will be merged with main budget.
  • Introduction of GST will play a major role in budget.
  • Demonetization and digitization of transactions will also steal the focus because India has been 80-percent-cash economy since Independence.

Service Tax Changes: ST May Increase to 16-18%

As we have already stated, GST, which is scheduled to be implemented starting July 1, 2017, is going to be one of the focal points of the Union Budget 2017-2018. GST has been designed to subsume several central levies and state levies such as VAT, service tax, excise duty etc.

Service tax changes

GST bill was passed with various tax slab possibilities. These slabs include 5%, 12%, 18% and 28%. Experts are expecting that Arun Jaitley will announce a hike in service tax somewhere to the level of 16-18%. The current service tax rate is 15%. This move, according to experts and analysts, is a very logical move as the increased rate of service tax will possibly stand between 16% and 18%. This will bring the service tax rate close to one of the proposed GST tax rate slabs.

What’s really interesting is that not all experts hold the same opinion. There is a difference in views. Some experts believe that there will be two different rates for service tax. One rate will be designed to target basic services. This rate, according those experts and analysts, will be lower that the currently standing rate of service tax. The expected service tax for basic service, according to them, will stand at 12%. For everything else (that doesn’t count as basic services), service tax rate will experience a hike of 3% and the new rate will stand at 18%.

But Why Increase Service Tax?

Experts explain that with an increase in service tax rates, the following things will happen:

  • Increase in government revenue. This will provide the Union Government with sufficient funds to stick with and continue the schemes that the government launched for the citizens of this nation. Some these schemes and plans have been designed for containing demonetization effect.
  • Consumers will get accustomed with higher price and will not be shocked with price hikes when GST rolls out.

Previous Increases in Service Tax

This isn’t the first time when service tax is increasing. It is actually the 4th time that Arun Jaitley may raise the bar. Here is the list of changes that were made previously:

  • 1st June, 2015: Service Tax increases to 14% from 12.36%.
  • 15th November, 2015: Service Tax increases to 14.5% from 14% because of Swachh Bharat Cess.
  • Union Budget 2016-2017: Service Tax increases to 15% from 14.5% because of Krishi Kalyan Cess.

Whether the service tax will actually increase or not is something that we will find out only when the budget is presented. For now, 16-18% ST is a m

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