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Service tax hike: Common man's expenses set to shoot up

business Updated: Mar 01, 2015 00:36 IST
HT Correspondent
HT Correspondent
Hindustan Times
Union Budget


Get ready to spend more on mobile bills, air travel and eat outs, among several other day-to-day facilities.

Finance minister Arun Jaitley’s proposal to boost service tax from the present 12.36% to 14% in the Union Budget 2015 seems to burn a hole in the common man’s pocket.

The hike will affect cable and direct-to-home services, visits to beauty parlours, courier services, dry cleaning, credit and debit card-related services, asset management, stock broking and insurance, among other activities.

“To facilitate a smooth transition to levy tax on services by both the Centre and states… the service tax rate is being increased from 12% plus education cess to 14%. The education cess, and secondary and higher education cess shall be subsumed in the new service tax rate. The revised rate shall come into effect from a date to be notified,” Jaitely said.

All service-related industries have expressed disappointment over the rise. “The hike in service tax will immediately increase air fares and hotel tariffs. The first and business class fares will shoot up. This will affect with tourism industry,” said Subhash Goyal, president, Indian Association of Tour Operators.

The insurance sector echoed similar concerns. “The increase in service tax may be a deterrent to the insurance sector,” said Rajesh Sud, CEO and MD, Max Life Insurance.

The boost in service tax may make it difficult for the quick-service restaurant sector (QSR), say experts.

“Increase in service tax will negatively impact QSRs as it is an extremely price-sensitive market in an increasingly competitive space. Inflation has always been a big cause of worry, directly affecting raw material costs, which cannot be passed on entirely to the consumers,” said Anun Dhawan, director, Mentor Hospitality, which handles the master franchise of Pita Pit, a Canada-based QSR.

However, economy experts believe that the rise in service tax is a steady move towards the introduction of goods and services tax (GST).

“The hike will prevent the consumer from shelling out more once GST is introduced. GST will further increase service tax to 16%-18%,” said Sachin Menon, partner, KPMG India, a consultancy firm.

However, the government has exempted certain pre-cold storage services for fruits and vegetables from service tax, a move aimed to promote the food processing sector and check price rise of perishable items.

The budget elaborated that exemption will be on services by way of preconditioning, pre-cooling, ripening, waxing, retail packing and labelling of fruits and vegetables.