Budget 2017: FM Arun Jaitley may hike service tax to 16-18%

New Delhi: As a precursor to the Goods and Services Tax (GST) rollout, Finance Minister Arun Jaitley is likely to hike service tax to 16-18 percent from the present 15 percent in the upcoming budget.

The move, that will make flying, eating out, phone bills and a host of other services expensive, would be an attempt to take the rates closer to the proposed tax slabs for GST.

GST, which will subsume central and state levies like excise duty, service tax and VAT, is scheduled to be rolled out from July 1.

The tax slabs decided for the GST are 5, 12, 18 and 28 per cent and taking service tax closer to one of the slabs is a logical move in the Budget, tax experts said.

Tax experts say, Jaitley, who had in his previous budget hiked service tax rate by 0.5 per cent to 15 per cent, may raise the levy by at least one percentage point to 16 per cent.

Some others feel there could be different service tax rates with a lower 12 per cent for basic services and a higher 18 per cent for the rest.

Also, a higher service tax for April-June will help the government garner more revenue to meet expenses on schemes and programmes it may be planning to contain the impact of demonetisation.

A service tax rate closer to the GST rate will also help consumers avoid a greater price shock when the new national sales tax is rolled out.

While service tax until now is a central levy, it will be equally split between the Centre and states under the new GST regime. Most services, except essential ones like primary healthcare and basic education, will be covered by GST.

With PTI inputs