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Government may propose hike in service tax if GST rollout is delayed

India TV Business Desk New Delhi 11 Jan 2017, 14:30:30 IST
India TV Business Desk

The delay in Goods and Services Tax (GST) rollout may result in the government proposing a hike in the service tax rate.

According to a report in The Hindu, Finance Minister Arun Jaitley may consider increasing the service tax in the Budget as a fallback option in case GST rollout is delayed beyond April 1.

“There is some thinking of an increase in the service tax rate in case the GST is not implemented from April. A higher rate will help improve revenue and also bring it closer to the proposed standard rate under GST,” an official privy to the development told the daily. 

This year, the Union Budget will be presented on February 1 instead of February end. This has been done in order to ensure Ministries and government departments get funds on time to start spending from April 1.

The decision to hike service tax, official said, will be taken later in the month after GST Council’s meet closer to February 1.

“It has to be closely examined at the highest level before it is announced,” the official added.

At present, service tax at the rate of 15 percent is payable on all taxable service. While presenting the current fiscal’s budget, the Finance Minister had hiked the service tax rate to 15 per cent with the introduction of the Krishi Kalyan Cess at the rate of 0.5 per cent.

Once the GST comes into effect, most services are likely to be taxed at a higher rate of 18 per cent under the new tax regime. This was part of the four-tier rate structure approved by the GST Council in November last month. The other three rates proposed under GST are 5 per cent, 12 per cent and 28 per cent.

While the government Centre has set April 1 as the deadline for GST rollout, the states have been pushing for a mid-year rollout. The rollout is struck because of differences between the Centre and states over control and administration of the tax as also on how the states that face revenue shortfall because of the GST rollout will need to be compensated.