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Budget: Service tax rate may be raised to 12 pc
February, 11th 2010

With the government's fiscal deficit ballooning, there are chances of service tax rate being restored to 12 per cent in the upcoming Budget, official sources said.

The government had last year cut down service tax rate from 12 to 10 per cent as part fiscal stimulus measures to help the economy tide over the then slowdown.

Official sources said service tax rates could be raised to the original level of 12 per cent as the booming sector is something the revenue department banks upon but the 2 per cent duty cut has brought a dip in the service tax revenues.

Together with cut in service tax and excise duty reductions, Plan expenditure was also stepped up, leading to widening of fiscal deficit as the total stimulus amounted to Rs 1,86,000 crore.

The fiscal deficit, which was projected to be 2.5 per cent of GDP at the beginning of 2008-09, crossed six per cent by the end of the fiscal. It is projected to further rise to 6.8 per cent this fiscal.

"With rising fiscal deficit to manage and the economy showing some signs of recovery, the government may withdraw the fiscal stimulus, though not completely. Service tax ambit could be widened and the rates may see upswing to the pre-stimulus period," said Ernst and Young Partner and Indirect Tax Leader Vivek Mishra.

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