BUDGET 2012: LEARN TO LIVE WITH SERVICE TAX .

[Dr. Sanjiv Agarwal]

The only tax which is a milking cow for government is service tax, the tax revenue from which grew by over 35 percent in 2011-12 and is further bound to grow over 30 percent in 2012-13.

The service tax regime is up for full metamorphosis, first time in last 18 years since its inception. The Finance Minister too said in his budget speech that service tax will attain adulthood by completing 18 years and it was time to shift gears and accelerate ahead. Efforts have been made to align service tax and excise so that possible migration to goods and service tax (GST) in future proves to be hassle free.

The government has given a solid blow to all service consumers, being a consumption based indirect tax by hiking the service tax rate by 20 percent from 10% to 12% w.e.f. April 1, 2012. This would mean that all taxable services would cost more - be it air travel, hiring a cab, hotel accommodation, eating out in a restaurant or consuming services such as beautify parlour,  health club etc. Even the rent of your non residential properties will go up as taxes rise. While all services consumed in office or factory are allowed credit, personal consumption will only add to cost. For example, your going on a holiday will pinch your pocket more rather than going on an official tour. Other personal spends such as on photography, mobile phone, internet, conferences, advertising, housing purchases, house repairs etc. will go up. Higher service tax will further spur up inflation.

Presently, over 120 services are subject to service tax in India following a selective approach. This implies that only those services which are specifically included in ‘taxable services’ are liable to service tax. We will now move to a comprehensive approach as proposed in the budget. Service Tax will be applicable to all services except the negative list.

 The budget proposes a negative list of 17 services which comprises of services provided by government, pre-school and school education, renting of residential buildings, entertainment, vocational courses, public transportation, agriculture, animal husbandry etc. Apart from negative list, there are over 30 exemptions on which no Service Tax will be applicable. Thus, Service Tax would be levied on all economic activities which are not sale of goods, not covered in negative list and not included in exemptions. Infrastructure related construction activities, low cost housing, legal services by individual advocates to non business entities, rail travel other than AC travel etc. are in exemption list. Electricity distribution will also be exempt from Service Tax. To site few examples, education (including coaching) which do not lead to recognized degree, air travel, life insurance premium etc will become costlier as Service Tax on such services will be higher. In case of man power supply, construction and vehicle hire, service tax will be shad and payable by both – service provider and service receiver in prescribed ratio.

On the positive note, it is proposed to withdraw Service Tax on maintenance and repair of roads and non commercial buildings w.e.f. 2005. This will settle all pending disputes and reduce litigation.

The crux of service tax proposals is that one should be prepared to inculcate the habit of paying Service Tax on all services as Service Tax in going to stay in India in one form or the other. You should, however feel contended that there will be no service tax on funeral, burial, crematorium or mortuary services including the transportation of the deceased, as it appears in the negative list.