Budget may hike service tax, make eating out, movies and flying costlier


Finance minister Arun Jaitley could raise the service tax rate in the Budget to be presented on February 1, a move that will increase the cost of eating out, going to the movies or flying.

Two senior government sources told Hindustan Times on Friday that the existing rate of 15%, which includes two cesses, could be raised by another 0.5% to 1%.

“The government might want to increase the service tax so that the shift to GST is not abrupt,” one of them said, referring to a proposed a Goods and Services Tax that has missed several deadlines because of political wrangling. Jaitley has said he wants to roll it out by July 1.

Service tax is a charge service providers collect from customers and then pass on to the government. There are some services provided by state and central governments that do not attract this tax.

A rise in service tax could give the government some elbow room to offer cuts in personal income tax or spend more to revive private consumption that received a shock after Prime Minister Narendra Modi pulled out high-value banknotes from the economy in November.

Should the government change the rate of service tax, businesses will have to spend to alter their systems to reflect this – an additional cost at a time when the GST is set to be rolled out, tax experts say.

In 2016-17, the government pegged revenue collection from service tax at Rs 2.31 lakh crore.

Service tax rates have seen an increase over the last two years. In 2015-16, service tax was increased from 12.36% to 14%. The Swachh Bharat cess of 0.5% also was hitched to it. This financial year, the Krishi Kalyan cess of 0.5% was bundled along, taking the tax rate to 15%.

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