Eating out in restaurants, buying property and insurance and mobile phone calls are likely to become more expensive if Finance Minister Arun Jaitley raises service tax in his third budget due on February 29. Service tax is levied on all services except a small negative list.
The buzz of another service tax hike has got stronger in view of the impending transition to the Goods and Services Tax (GST).
The government may hike service tax to around 16 per cent which is closer to the revenue neutral rate of 18 per cent under the proposed GST, Mihir Vora, director & chief investment officer with Max Life Insurance told NDTV Profit.
According to Ashish Kumar of Elara Capital, the government can either roll out a central GST or hike the service tax rates on a suo moto basis to bring it closer to the standard rate of 17-18 per cent proposed by the Subramanian Committee, which had recommended a revenue neutral rate of 15 or 15.5 per cent, which in turn would entail a standard rate on goods and services of 16.9-18.9 per cent under various scenarios.
"In both these cases, a hike in service tax by at least 200 basis points looks imminent," Mr Kumar added.
Mr Jaitley had last year raised service tax rates from 12.36 per cent (including education cess) to 14 per cent; this was later bolstered by a 0.5 per cent cess for "Swatch Bharat". As of now, service tax rate stands at 14.5 per cent.
Advertising, air travel, services of architects, certain type of constructions, credit cards and event management are some of the services which attract this tax. Rise in service tax will also be negative for the telecom and services industries, which includes hotels and real estate.
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