Service Tax in Budget 2008

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The increase in the rate of service tax in budget 2008 would have taken place in the annual budget of FY 2007-08, if not for the increase in inflation. However, rate of inflation is low this year and it is likely that the increase will take place. Several preparations are underway and the only thing one can do after all these speculations is to wait and watch until February, 29th.

In the FY 2007-2008, the Indian Government wanted to increase the service tax rate to 14%. However, this did not materialize due to the fact that rate of inflation was 6.5% during January, 2007. In the current fiscal year 2008-2009, many changes are expected to set in with respect to the service tax rates.

It is also expected that the service tax could be increased to 14%. This increase is being expected further because rate of inflation in the last week of December, 2007 was 3.5%.

Advantage of a progressive tax:

Currently service tax is levied upon 100 services. It is being anticipated that service tax being a progressive in nature will earn the maximum revenue for the country as part of the indirect tax revenue. However, this is possible only if all the services are appropriately included within the purview of taxes.

New services to be added:

The Empowered Committee of State Finance Ministers have recommended that the following services ought to be included in the service tax regime in budget 2008. It may be mentioned here that this proposal was given by the above mentioned body right from the FY 2007-08.

  • Unaided non government colleges and schools, amusement parks, hospitals not aided by the government are expected to be brought within the purview of the service tax in budget 2008.
  • Writing legal draft
  • Vending stamp paper
  • Amusement machines, which are operated by coins
  • Recreation
  • Services related to amusements.
A curtain raiser to GST or Goods and Services Tax:

It is being presumed that the increase in service tax rates is a curtain raiser to the launch of the Goods And Services Tax or GST from the year 2010 April. In order to effect these changes, Finance Act 1994 is expected to undergo amendment in India budget 2008. Another move of the government being anticipated pertaining to services tax in budget 2008 is that for purpose of taxation, about 44 services have been transferred to the state government.

TRP schemes:

With the TRPs schemes or the tax return preparers schemes exhibiting immense efficiency, the Finance Ministry has been encouraged to do the same with regard to services taxes. It is being reckoned that the Finance Minister is likely to declare the same pertaining to service tax in budget 2008. If this is executed, it will help the small services providers. To give it shape, the Central Board of Excise and Customs is drawing up a plan.

Inflation Rate

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