Finance Minister Arun Jaitley is likely to provide tax breaks for the middle class in the upcoming Budget, but there's rising fear that the government may hike service tax to compensate for the shortfall in revenue.
Pratik Jain, partner (tax) at KPMG told NDTV that service tax may increase to 14 per cent in this Budget. (Watch)
If service tax goes up, eating out in restaurants will become costlier; other services like consultation with lawyers, gym membership, club membership may also cost more from the next financial year.
A hike in service tax is expected because the government is moving towards the implementation of the Goods and Services Tax with effect from April 1, 2016.
"Service tax is going to go up if GST is implemented. Today the service tax is 12 per cent, it is going to move to 16-17 per cent when GST comes in. It will be difficult for the government to increase the service tax at one point of time. So it should be gradual," said Mr Jain.
He expects Service tax to go up by 2 per cent to 14 per cent in the upcoming Budget. A 2 per cent hike can generate additional tax-revenue of Rs. 30,000-Rs. 35,000 for the government. "It will pinch consumers a bit but at some point of time that decision has to be taken," added Mr Jain.
However, implementation of GST may lead to lower prices of manufactured items as taxes will go down for such products.
According to Mr Jain consumers pay a total of 25-26 per cent tax including excise duty and value Added Tax (VAT) on most of the manufactured items. So post implementation of GST the taxes are going to come down. "It will also make buying decisions quite easy because prices will remain same irrespective of place," added Mr Jain.
KPMG also expects the government to address the inverted tax structure in the Budget to give a push to Prime Minister's 'Make-in-India' campaign. For some products like tyres and chemicals, the customs duty on raw material import is higher than the customs duty on finished products, which hurts these industries. KPMG believes government will address these issues in the coming Budget.
SOURCE - NDTV