Higher service tax to add to pain of middle-classa
March, 09th 2015
With the finance minister increasing the rate of service tax from 12.36% to 14% in the Budget, the middle-class is going to feel the pinch.
Services like air travel, telephone, eating out at restaurants, dry-cleaning, courier, cost of engaging lawyers or chartered accountants, beauty treatments, cable and DTH services, etc, will now cost more.
For instance, a business class traveller would now have to pay service tax on 60% of the value instead of 40%. The cost of basic financial services, such as loan processing charges, credit and debit card bills, etc., will also go up. Higher service tax rates will have an impact on life insurance premium as well, thereby making insurance policies costlier.
On the positive side, though, life insurance services provided by way of the Varishtha Pension Bima Yojna have been exempted from service tax, which is sure to bring a smile on the faces of senior citizens. Patients, too, have been spared from the levy of service tax with an exemption being introduced for ambulance services. Packaged fruits and vegetables will become cheaper as pre-cooling, ripening, retail packing and labelling of these items have been exempted from service tax.
Tickets purchased for admission to entertainment or amusement facilities were exempt from service tax. However, Budget 2015 has levied service tax on tickets for amusement facilities and on award functions, concerts, pageants, musical performance or any sporting event (other than a recognised sporting event) etc, where the ticket prices are above R500, thereby making entry into such facilities/events costlier. But films, circus, recognised sporting event and dance performances continue to enjoy exemption from service tax.
Service tax exemption to services of mutual fund distribution has been withdrawn. This would result in an increase in the administrative cost of managing MFs, implying a decrease in returns for investors. The government has also decided to bring under the service tax net chit fund services and those selling or marketing lotteries, making these services costlier.
From a business perspective, service tax registration for a single premises can be obtained within two days of submission of documents. An assessee has now been allowed to issue digitally signed invoices and maintain records in the electronic form. The scheme of Advance Ruling has been extended, inter-alia, to sole proprietors and one-person company. This would go a long way in reducing unnecessary litigation for an individual undertaking business operations. Further penalty provisions have also been rationalised, encouraging assesses to undertake compliances in a timely manner.
The rising service tax bills may not stop here as there is a possibility of a further increase in service tax. The finance minister, vide an enabling provision, has proposed to impose a Swachh Bharat cess of 2% on taxable services, should more funds be required for the Clean India campaign.
Although the increase in the service tax rates is sure to pinch the common man, in the long run, it may be termed as appropriate since it is a precursor to the introduction of the GST regime.
What’s costlier * Services like air travel, telephone, eating out at restaurants, dry-cleaning, courier, cost of engaging lawyers or chartered accountants, beauty treatments, cable and DTH services, etc, will now cost more
* The finance minister has also proposed to impose a Swachh Bharat cess of 2% on taxable services, should more funds be required for the Clean India campaign - By Nitish Sharma
(The writer is executive director, Indirect Taxation, Nangia & Co. With inputs from Tanushree Roy)