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High service tax: Phone calls, eating out to become expensive from today
April, 02nd 2012

Telephone calls, restaurant bills and other activities will cost more from today with the budgetary proposal of raising service tax rate to 12% coming into effect from Sunday.

In order to garner an additional Rs 18,660 crore during 2012-13, finance minister Pranab Mukherjee increased the service tax from 10% to 12%.

The proposal, which will make host of services including travel by air-conditioned rail coaches, courier services and coaching classes expensive, comes into effect from April 1, 2012.

There are over 120 services which attract service tax. These also include air travel, life insurance, beauty parlour, advertisement, dry cleaning, health clubs, cable operator, credit card, credit rating etc.

The minister in his Budget speech last month had said, "I propose to raise the service tax rate from 10% to 12% ... My proposals from service tax are expected to yield an additional revenue of Rs 18,660 crore."

The government proposes to collect about Rs 1.24 lakh crore from service tax during the current financial year, up from Rs 95,000 crore during 2011-12.

The services sector accounts for about 59% of the country's Gross Domestic Product (GDP).

In order to expand the base of service tax, the Minister proposed a negative list, a notification regarding which would be issued later.

Under the negative list proposal, the service tax will be levied on all services expect those mentioned in the list. At present the tax is levied on the basis of a positive list, meaning that it applies only to specified services.

The proposed negative list of services, on which the increased service tax of 12% will not be levied, include admission to entertainment events, access to amusement facilities and travel by radio taxis and auto rickshaws.

Other important services which will not attract the tax include funeral, burial, mutate services and transport of deceased.

While unveiling the negative list, the government had clarified that the tax will be levied on travel by first class and in air conditioned rail coaches, transport of goods by a transportation and courier agencies.

As regards education, the service tax will not be levied on school, university education and approved vocational courses. The coaching classes and training institutions, however, will continue to be subject to service tax.

In order to bring as many services as possible in the net, the government has come out with a very wide definition of service. With some exception, it has been defined service as "any activity carried out by a person for consideration".

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