India May Rollback Service Tax to 12 Percent

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Jun. 11 – The Indian government is considering a rollback of service tax to its previous level of 12 percent in the wake of rising state expenses and shrinking revenue.

Last February, the service tax rate was lowered to 10 percent as part of the country’s third stimulus package. According to estimates, service tax collection is a growing revenue generator. Collections for 2008-09 amounted to about Rs 60,000 crore, a 18 percent increase.

It will be up to the finance minister, Pranab Mukherjee, and the Prime Minister’s Office (PMO) and the Planning Commission to decide on the matter.

Authorities are also considering increasing service tax collection by including segments like education, legal and medical services under the tax net although the move is sure to be met with protest.

The finance minister would have to build political consensus if these services are to be taxed, sources told The Economic Times. They added that education and medical services are sensitive from the social sector point of view and taxing them could be difficult if the mood of the UPA government is any indication.