Finance minister Arun Jaitley expanded the service tax net, which will make certain services such as hiring radio-taxis and online ads more expensive but also help the government garner close to Rs. 51,046 crore.
The NDA government’s first budget also withdrew exemptions to services of air-conditioned contract carriages and testing of new drugs on human participants to broaden the tax base.
Advertisements on online/mobile media have also been brought under the services tax net, but sale of space for ads in print media has been excluded. Radio-taxi services will now come under the indirect tax net on a par with rent-a-cab services.
The government aims to collect about Rs. 2.16 lakh crore from taxes on services this financial year, up 31% from Rs. 1.65 lakh crore in 2013-14.
“In recent times, among indirect taxes, service tax has shown the highest rate of growth ... To broaden the tax base in service tax, it is necessary to prune the negative list and exemptions to the extent possible. Accordingly, the negative list has been reviewed,” Jaitley said.
The government also gave in to a demand from the tourism sector and exempted Indian tour operators from the tax net for services to foreign tourists outside the country.
“A long-standing demand of this sector has been to allow Cenvat credit for services of rent-a-cab and tour operators. I now propose to allow credit in the same line of business,” the finance minister said.
Jaitley also proposed trimming of the negative list to bring more services under the tax net. The negative list refers to services that are exempt from taxation. The government revises the list whenever it wants to bring more services under the tax net.
Services, the fastest -growing sector of the Indian economy, clocked an annual growth of 9% between 2001 and 2012. The sector employed 26.9% of the workforce during 2011-12, up from 19.7% in 1993-94.