Institute of Management Studies & Research

Sasmira Marg, Worli, Mumbai 400 030

Sasmiras

MMS-SEM II SUBJECT: TAX aspect of business ASSIGNMENT:01

TOPIC: Effect of budget 2012-13 on service tax

Submitted ToPROF. Naveen Rahtogi

Submitted By:Group no-3

Anuj Shah-47 Brijendra kumar-24 Pallavi mansukh-27 Priyanka k.-23 Afrin shikalgar-51 Sheetal j.-18

Introduction
The levy of Service tax was introduced in the year -1994 vide the Finance Act, 1994 (the Act) as a levy on 3 taxable services. Since then, new taxable services have been notified every year and currently 119 notified taxable services are subject to Service tax under the Act. The term service per se which was not defined in the first 18 years of service tax law, has now been defined. In terms of the budget proposals, the levy of service tax is on all services other than those services which are specified in the negative list, at the rate of 12% on the value of all services. The budget proposals mark a clear shift from a taxation based on a positive list of services to taxation based on a negative list of services. The levy is on the services provided or agreed to be provided by one person to another. It is to be noted that no other indirect tax legislation seeks to tax future events, such as services to be provided. The said changes as well as all other connected changes are to come into effect from a date to be notified after the enactment of the Finance Bill, 2012. The rate change will however be effective from 1st April, 2012.

Impact of Budget 2012

The need to continue the process of fiscal consolidation and for indirect tax revenue to contribute more has led to an increase in central excise and service tax to 12% from 10%. Indirect tax proposals(service Tax) in the budget are an attempt to increase revenue mobilization through widening the tax base and strengthening enforcement. Proposal to tax all services except those in the negative list or list of exemptions has been also introduced.

The negative list shall comprise of the following services, namely:

services by Government or a local agencies services by the Reserve Bank of India; services by a foreign diplomatic mission located in India; services relating to agriculture trading of goods; any process amounting to manufacture or production of goods; selling of space or time slots for advertisements other than advertisements broadcast by radio or television; service by way of access to a road or a bridge on payment of toll charges; Betting, gambling or lottery; Admission to entertainment events or access to amusement facilities; Transmission or distribution of electricity by an electricity transmission or distribution utility; Educational services services by way of renting of residential dwelling for use as residence; 2

financial services and foreign currency transportation service of passengers services for transportation of goods funeral, burial, crematorium or mortuary services including transportation of the deceased.

What are the changes:Increase in service tax is projected to yield moderately increased revenue of Rs.18bn, when share of services in GDP is 59%. While the standard rate of excise duty has been raised from 10% to 12%, the merit rate has been increased from 5% to 6%, and the lower merit rate from 1% to 2%, leaving aside lower merit rate for coal, fertilisers, phones and jewellery. Excise duty on large cars is up from 22% to 24%. In the case of cars that attract a mixed rate of duty of 22% + Rs 15000 per vehicle, the same has been converted into an ad valorem rate of 27%. Peak rate of customs duty at 10% on non-agricultural goods is retained while to check high import of gold, basic customs duty on standard gold bars/coins and platinum has been increased from 2% to 4% and on non-standard gold from 5% to10%. Indirect taxes contribution is estimated to increase from 4.5% of GDP to 5% of GDP in FY13 reflecting a growth of 26.5% YoY. In the medium term outlook, indirect tax receipts as percentage of GDP is projected at 5% in FY14 and 5.2% in FY15.

Impact of Service Tax on Hotel Industry

The reinstatement of service tax to 12 percent from the earlier rate of 10 per cent will adversely affect hotel players. The abatement provided for hotel accommodation has been reduced from 50 percent to 40 per cent. As a result, the effective service tax for hotel accommodation will increase to 7.2%-5% However, the increase in service tax will be mildly offset by the tax credits allowed on the input services received by hotels. Given the intense competition in the industry, the players will have limited ability to pass on the increase in service tax through higher room rates.

Impact of Service Tax of IT sector

These will increase the cost of doing business in India. However, we believe this will impact a very small part of the revenues of the listed companies. Most of the companies have a very small part of revenues coming from domestic business. Even in those cases, we expect the burden to be passed on to customers.

Impact of Service Tax on Media:

The rise in standard rate of service tax is likely to impact DTH players, who would likely pass on the increased taxes to the consumers. Among listed companies, Dish TV would be exposed negatively to the development. The development has been highly expected. A higher tax rate would also modestly impact broadcasters

Impact of Service Tax on Real Estate:

Negative. Increase in service tax would result in increasing the unit cost for the buyers. With abatement of 75% on the cost of flat, buyers were required to pay a service tax of 2.575%. Now it would get enhanced to 3.09%.This may impact the demand slightly since developers would pass on the increased impact of service 3

tax.