Retaining the stimulus rate of service tax at 10 per cent, the Union government on Friday sought to widen the revenue base by bringing eight new services, including brand promotion, under the net and expanded the ambit of some of the services to garner Rs. 68,000 crore during 2010-11.
In effect, it will be Rs.10,000 crore more than the Rs. 58,000 crore mopped up this fiscal, as per the revised estimates.
Explaining the rationale for the changes, Finance Minister Pranab Mukherjee said that while the service sector contributed 60 per cent of the gross domestic product (GDP), its tax to GDP ratio was only 1 per cent, so there was significant potential to augment revenue. He had two options: raising the tax rate to the pre-stimulus levy of 12 per cent or bringing all services under the net.
With the excise duty increased to 10 per cent from 8 per cent, the Finance Minister chose the option of retaining the service tax too at 10 per cent. “…to bring about convergence in the rates of tax on goods and services, I, therefore, propose to retain the rate of tax on services at 10 per cent to pave the way forward for GST.”
According to the explanatory memorandum, the eight services being brought under the tax net include promotion of brand of goods, services, events and business entity, permitting commercial use or exploitation of any event organised by a person or organisation, as also services provided for maintenance of medical records of employees of a business entity and electricity exchanges.
Promotion, marketing or organising of games of chance, including lottery, has also been made a separate service. Also under the tax net will be health services provided under insurance schemes offered by insurers and health check up undertaken by hospitals or medical establishments for employees of business entities. These services are to come under the tax net from the date of notification after the Finance Bill, 2010, is enacted.
The Budget also clarified that renting of immovable property is a taxable service, with retrospective effect from June 1, 2007. Certain additional services provided by a builder to prospective buyers such as providing preferential location or external or internal development of complexes on an extra charge also come under the tax net.
While the scope of air passenger transport service is being expanded to include domestic journeys and international journeys in any class, copyrights of cinematographic films and sound recording have also been brought under the tax ambit. However, copyright of original literacy and dramatic, musical and artistic work will continue to remain outside the scope of service tax. Providing vehicle-parking space will not be subject to tax.
