Govt mulls raising service tax up to 16% for Q1

Given that the service tax and excise duty will possibly feature in the budget for the last time, the government is planning to mop up some more revenue from people by increasing the service tax from 0.5 per cent to 1 per cent. However, the increased service tax will be applicable for the first three months (first quarter) of the financial year 2017-18 as from July onwards the Goods and Services Tax (GST) will be implemented across the country.

According to sources, the government is aiming to add about Rs 20,000 crore more to its exchequer by implementing the hiked service tax for three months starting from April. "As the four-tier GST tax structure has been finalised and people will have to pay about 18 per cent service tax from July onwards, the proposed hike is very nominal," a source said, adding that the extra fund collected from service tax would be used for strengthening infrastructures in sectors like agriculture, health and education.

Notably, in the Budget 2016, the service tax was hiked to 15 per cent after Krishi Kalyan Cess, which was levied at the rate of 0.5 per cent on all taxable services. The government is aiming to add Rs 7,500 crore from the Krishi Kalyan Cess, which would be distributed among the ministries of Water Resource, Rural Development and Agriculture to be spent on farmer welfare schemes.

In the Budget 2015, the Finance Minister had increased the service tax rate from 12.36 per cent to 14 per cent.

Then again, from November 15, 2015 onwards Swachh Bharat Cess at the rate of 0.5 per cent kicked in and final service tax rose to 14.5 per cent.