FM Likely To Hold Service Tax At 12%

The Finance Minister might hold the service tax rate at the current rate of 12 per cent in the upcoming Budget.With the Centre and States working to move towards a uniform tax system, the Goods and Service tax, a hike in key indirect taxes at this stage could create imbalances between State and central taxes.

But to make good the notional loss of revenue by this step, new service are going to come under the service tax hammer in the Budget.Policy shifts are likely in the way the finance ministry is looking at key indirect taxes just before the Budget and the trigger for this is the pressure to chart out the roadmap for an uniform GST.Although the dateline for GST is April 1, 2010, policy watchers say that the timeframe is not enough considering the fact that all central and State taxes will finally converge at one rate.

Policy makers say that one of the steps most likely in the coming Budget would be to hold the service tax rate at 12 per cent. Reason being that under GST manufacturers might be able to set off the service tax paid against State taxes like VAT.Under those circumstances, service tax would be more of an input tax with VAT being the output tax, as the GST framework cannot permit an inverted duty structure.