Even as finance minister Pranab Mukherjee decided to continue with the 2 percentage point exemption in service tax to 10 per cent in 2010-11, railways, airways and insurance sectors received shocks.
Experts say that the measure of keeping the service tax at 10 per cent is in line with the overall stance of fiscal consolidation, as maintaining this rate pre-empts the introduction of Goods and Services Tax (GST).
“Service tax being kept at 10 per cent is in line with fiscal consolidation…If we know that we are going to move on to GST a year later then having two separate rates for excise and service tax would have been counterproductive,” said Rajeev Dimri, analyst with BMR advisors.
“Right now, the government would like to create least impact on the industry.”
By adding eight new services in the tax regime and expansion of some of the existing services, the government pegged the total receipts from the service tax at Rs 68,000 crore during 2010-11, up from Rs 58,000 crore as per the revised estimates for 2009-10.
Transport of goods through railways, which was till now exempted from service tax, will have to bear the burden of 10 per cent service tax. Such a measure is expected to reduce the competitiveness of the railways.
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