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Health, education to come under service tax ambit
January, 12th 2011

The finance ministry is likely to impose service tax on health and education in the forthcoming Union Budget at a rate lower than the 10% currently levied on 117 services as it seeks to cautiously expand the tax base to the two sensitive sectors.

A lower duty is expected to make taxation acceptable in these sectors, where taxation and profiteering are generally not tolerated by the public.

Although the proposed goods and services tax (GST) aims at a single rate for service tax, a dual rate structure could be the order of the day for the services sector initially. The rates would be converged in due course.

Once approved, the proposal could bring health sector services like lab testing and education sector services like training institutes along with few others in the tax net.

A few other services in these two sectors are also being examined for taxation but a list is yet to be finalised.

The finance ministry would also introduce codes for the services sector similar to the codes that exist for customs and excise tariff, said a person familiar with the development.

The codified, larger positive list of taxable services-- listing items by names and codes as per the UN system-may be unveiled in the 2010-11 budget. Some health and education services in expected in the list.

The move to widen the list shall pave the way for roll-out of proposed indirect tax regime of Goods and Services Tax (GST) that aims at broadening the tax base for goods and services.

The finance ministry is considering to add more services in the tax net but the essential and politically sensitive services can be taxed at a lower rate in the initial phases and gauging the response for the tax, it could be merger with GST rate later. Service tax is currently charged at a rate of 10% on 117 services. These include eight new services that were introduced in the budget last year. Revenue generation from service tax is on the rise every year with government gradually expanding the list.

For the period April-November in 2010, service tax collections went up by 18.2% to Rs 38,927 crore over the previous year's collections during the same period. The government expects to mop-up Rs 68,000 crore from service tax in 2010-2011 as against last year's collections at Rs 58,000 crore.

The government move to expand the service tax net is expected as it is unlikely to tinker with the service tax and excise duty rates that was brought down as a stimulus to the Indian industry when it was grappling with global financial meltdown. The new services shall help India garner revenues that could aid in bridging the fiscal deficit.

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