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Service tax hike on cards but no impact on inflation: CBEC
November, 02nd 2011

Brace yourselves for taxing times. The outgoing chairman of the CBEC says the government may hike services tax rates to plug the revenue gap, reports CNBC-TV18s Aakansha Sethi.

If it is a rate hike it will be from 10-12%. Before the crisis in 2008, the service tax rate was 12% which was brought down to 8% as part of the fiscal stimulus package. Then last year it was taken up to 10% and now the Finance Ministry is again considering increasing it to 12% because this year has been a tough one as far as the fiscal deficit is concerned.

The indirect tax department has revenue foregone of about Rs 49,000 crore on account of cuts in fuel duties. A slowdown in growth has impacted tax collections in September which saw excise declining 8.7% for the first time this year. Overall tax collections grew by about 5.9% in comparison to the previous month where they grew by about 23%.

So faced by the slowdown in indirect taxes and an excess expenditure, overshooting of subsides whether it is oil or fertiliser or bank recapitalisation.

S Dutt Mazumder, Outgoing Chairman, CBEC said, There is lot of opportunity for expansion in Service tax. The service tax rate increase will not have any direct effect on inflation also. This could be an area which may need a look at. Otherwise an excise duty hike, I am not certain about. It will be too early for me to say.

So a hike in service tax will not have an inflationary impact which a hike in excise duty will. Sources in the finance ministry say they are looking at a hike in excise on tobacco and tobacco products and also on diesel-run cars. However, the final decision on both these aspects will be taken only after the data for October is in.

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