Why did the Indian government increase the service tax from 12.36% to 14%, which will come into effect from 1st June 2015. What are the cons and pros of doing so?
The Primary reason behind hike in service tax rate from 12.36% to 14% to be effective from 1st June, 2015 is to negate the immediate effect of the high GST rate & habituate people in easily digesting the after effects of GST; In fact they have also increased the Excise duty Rate to 12.5%. Since the Gst is set to come next year and to ensure that there is no loss of revenue to government the rate of Gst will be high , since it will take over all the indirect Taxes like Vat , Service Tax , Excise & Customs etc. **Note: -** Education cess will be subsumed in this new rate i.e. 14% additionally; the minister announced that a 2% Swachh Bharat cess will also be implemented across verticals though there is no clarity.
Introduction of GST is eagerly awaited by Trade and Industry. To facilitate a smooth transition to levy of tax on services by both the Centre and the States, it is increased the rate of service tax plus education cesses from 12.36% to a consolidated rate of 14%.
-The service sector in the present era is generating a good amount of revenue to our Government. -Increasing taxes on income that is income tax or VAT gives a bad impression on pulic -Normally what hurts public is to pay tax for buying any article or to pay direct tax directly on income -However Service Tax is since inclusive So many people don't see it otherwise -Moreover Service tax is not on small professionals that concerns with the 10lacs exemption n al -But if it is about VAT then all are required to pay tax -So this is also a way to collect tax from middle or high class people and keeping low class people away from this to much extent ie other than for necessities of telecom or electricty or so
Dear Kruthika, Increase in the rate of service tax is a government policy only. however such step taken by the govt for implementation of GST, because as per drafted bill of GST, GST rate should be between 16-18%. because of such reason govt increase the rate of service tax so that after impeletation of Gst the price of product and service are not getting hike suddenly. However increase in the rate of service tax made burden of common people. Any other query feel free to contact us. Writer CA Chitranjan Agarwal
While the increase is minimal, 1.5%, will probably change a 1000 rupee bill to 1015, not much even if your doing 2-3 transactions a day, in aggregation, assuming that about 600m people transact on goods on services in our country, the effect can be huge. Assuming typical bill size a day is 400 rupees. That makes it 600m x 400 per day x 7 days x 1.5% = 25billion INR a week. Now assume that most of my figures are off by 5billion, that is still 80 billion INR a month, which is substantial revenue and can be used in a variety of ways Subsidize poor Import oil Invest in infrastructure Waive off farmer loans **Cons of Raising Taxes:** 1) Transactions can go down. Middle classes are price sensitive. So while the realization of an increase in taxes isnt visible with a single card swipe, cumulative spending rises and curtails peoples desire to buy more goods and services. 2) For ex, Even a family buying 2 eggs less as a result, can have monumental implications on tax and the poultry industry on an aggregate population level. Think about how many families would do something similar, what would happen to tax revenue and to producers of those eggs. We are more powerful than we think! 3) Bill amount per transaction can go down too. 4)People start to feel mehengayi and it can impact supply side, for ex, companies may cut their projections down for growth expecting some slowdown, and that sentiment multiplies into other producers as well.