Modi government to cushion the impact of hike in service tax, post GST

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Modi government to cushion the impact of hike in
service tax, post GST
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The government is going to try and cushion the impact that will be created by goods and service tax (GST) on services in case of an increase in the levy after the implementation of the tax reform measure.

A service tax of 14.5% is currently imposed by the government. However, GST rate is expected to be higher with states such as Kerala looking at a rate of 20%, so they don’t lose revenue in the new tax regime.

A rate of somewhere around 18% had been recommended by a committee under chief economic adviser Arvind Subramanian. “The GST council will look into various options to reduce the impact on several sectors. We are working on various parameters,” a senior finance ministry official, who did not wish to be identified, told ET.

"We will give our inputs and the various scenarios under GST. It is a political call which has to be taken," the official further added. According to the sources, in the run up to the general election in 2019, the government will take any measure to shield the voters/consumers in case of an increase in the service tax rate.

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The sources however said, the levy on restaurant bill is to be reviewed as the higher abatement for the service is due to the argument that several food products face excise duty, which is factored in currently .With these food products coming under GST along with the service provided by restaurants, the burden on the consumer may not rise significantly.

Also efforts are to be made so as to minimize the impact created by the GST on the under construction houses and the government may provide for abatement for land and other commodities used for construction. The problem however, arises as no abatement is allowed in lieu of land and other commodities such as steel, cement and sand used for the construction.

In contrast to this, a cushion may not be provided to lessen the impact for services like telecom, which will be impacting your mobile bill.
“Abatement may continue for some consumers facing services where it is impossible to segregate value of services and goods such as restaurants where combined impact of the GST rate is much higher than present tax rate under VAT and service tax," M S Mani, senior director at consultancy firm Delloite Deloitte Haskins & Sells LLP told ET.
(image:Reuters)