Widened service tax ambit may hike consumers' woes

LUCKNOW: The onset of the new service tax regime has added to the misery of consumers. And, it not only the common man, but also the creamier section, which is likely to feel the pinch. "In 1994-95 when service tax was introduced, only three services were covered. Almost 18 years later, the number of services covered under the service tax net stands at 119.Only a few essential items have been put on the negative list, which are exempted from the tax," said Amit Agarwal, a city based charted accountant.
From speed post, express parcel service of post office to air tickets and overseas holiday package bought from online portals will come under the 12% service tax bracket from July 1 with the Centre embracing the new service tax regime based on negative list. With the exception of 38 services, which figure in the negative list, all other activities would attract 12% service tax.
The government has widened the definition of 'Services' to bring in more activities under the tax net. Till now, 119 services that come under 'positive list' are subject to the levy. The switch-over to a negative list would help in expanding the tax base, and is also expected to increase the Centre's service tax collection to Rs 1.24 lakh crore in 2012-13, up from Rs 97,000 crore in the last fiscal.
Though the additional list of services incorporated into the service tax net would surely add to government coffers, and will make the common man cough more from his pocket. TOI has compiled a list of services, where consumers would have to take extra pain to cough more money:
Eating Out: If you are planning to dine out with family in a club or starred hotel (three, four or five star), then be prepared to shell out additional Rs 50 due to revised service tax. "For savouring a cappuccino in a coffee shop of a three-star hotel, one will have to pay 4.94% service tax against the previous rate of 4%. And if one is throwing a party in the banquet, service tax of 12.36% will be imposed," said Amit Sharma, who looks after reservations in a five-star hotel on Kanpur Road. People will have to spend more for get-togethers at the club or pubs as well.
Holidaying: Business or luxury travel has already made an impact. "I remember spending Rs 1,200 for a room in a budget hotel, when I came to Lucknow in April to meet my son. But this time, I got the same room for Rs 1,600," said Dr RN Singh, a private practitioner in Gorakhpur. City-based tour operator Prateik Hira affirmed the same. "Service tax was levied at the rate 10% earlier, but now it has increased," he said. Industry sources say that certain hoteliers had inflated their cost significantly on account of the new service tax regime.
Travel: Tickets bought for overseas destinations are also subjected to service tax. On transportation, the service tax is charged at 4.95% which was earlier 4.12%. "A 0.83% rise in the tax will not be a very substantial load on the commuters, as they were already being taxed," said RK Sinha of an international tour operator. The cost of rail travel may also swell. However, in response to a letter written by Union railway minister Mukul Roy, Prime Minister Manmohan Singh (who is also holding the finance portfolio) has put on hold the inclusion of passenger fare and freight fare in the service tax net for three months. In another development, consumers will have to pay more for availing passport and visa services through an agent. Keeping this in mind, secretary, Passport Employees Association, Sudhir Tiwari said that people should liberally avail online services and save money.
For the exclusive look: Personalised services particularly those relating to engaging a designer for exclusive clothes and dresses have been brought under the service tax loop. Thus, designer dresses and accessories will make one shell more. "And this is surely to hurt the would-be-brides the most," said Roma Bhalla, a city-based fashion designer. "This would be over and above the cost factors that the textile industry is facing on account of depreciating value of the rupee. All those who do not want to compromise with quality, will make their consumers pay more," she said. A store owner in Hazratganj however said that they may be forced to compromise with quality, if they were to keep their articles affordable. Even marriage bureaux, astrologers and numerologists will also be taxed. There will be 15-20% hike in consultancy price in this segment.
Host an event: Enjoying the live show of a superstar at a gala event would also get expensive. Hiring an artist -- except for those representing folk and classical music, dance or theatre - has been brought under the ambit of service tax. "The rate of tickets will increase according to the size of event and brand value of the celebrity participating in the event," said Anand Krishnan, an event manager. Similarly, delegates participating in conferences, seminars, workshops, sports and cultural events will have to pay additional fee, as the organisers will have to pay service tax for the event. "The participants of these events will bear the brunt of service tax," said Dr PK Gupta, vice-president, Indian Medical Association (IMA).
Qualifying foreign test: The sharp dip in the value of rupee against US dollar had already made foreign education expensive. "But now giving tests such as GMAT, GRE has also become costly because companies that conduct these examination will be subjected to service tax," said Sajan Modi, operation head of a coaching institute. Earlier, if a student appeared in GMAT, he spent 250 dollars as basic fee, which translated into Rs 13,750. Introduction of service tax at a rate of 12% would make people pay something around Rs 15,400.
Other services: Premium postal services such as speed post and express parcels would also get costlier. In other words, this means that against the old rate of Rs 40, which a private courier charged for sending a parcel of minimum weight from Lucknow to Delhi, a consumer will have to spend Rs 55. In another development, agencies dealing in money transfer will charge more, as they will have to pay service tax on the commission earned. Service tax is also being levied on 'entry and exit loads' paid on purchase or sale of mutual funds. Such loads are seen as consideration for documentation, asset management and other covering expenses. Currently mutual funds are not allowed to charge entry load, but if it is brought back, investors will have to be prepared to take the hit.
SERVICE LANE
Service is any activity carried out by a person or entity for another for consideration. Effectively, anything which is not a sale of good or an immovable property is a service.
The government has put out an exempted list and a negative list. Any service that is included in either of these lists will not be taxed.
Services not taxed include services of sub-brokers, mutual fund agents and distributors, business correspondents of banks, etc. 17 services are included in the negative list and 39 services in the mega exemption list. Services provided by governments and local authorities will not be taxed on the whole
4) In 1994-95 when service tax was introduced, just three services were covered. In 2012, the number of services stands at 120.
5) Service tax has generated money for the government. In 2011-12, Rs 97,579 crores was gathered through service tax.
Citizens cry foul over revised rates of service tax
Swati Sharma LUCKNOW: Once a frequent kitty party visitor, Malvika Sial would now rather prefer to meet less with friends. Instead of four monthly meeting, the number of such meetings could come down to two. Lamenting about the revision of service tax in the state, Malvika says, "We have been forced to undertake austerity measures. Eating out at restaurants and clubs would make us shell more."
Like Malvika, many other people are feeling apprehensive about the Centre's recent move to increase service tax to 12% from July 1, 2012. The Union finance ministry has moved to a new regime of service tax based on negative list from July 1, under which only 38 services are exempted from payment of the levy.
However, clubs would have to pay more, if they invite an artist to perform even at a small event. Exclusive designer wears too would come under the ambit of service tax, as taxmen now are eyeing designers' creativity. "Fashion designers will charge more on account of the service tax after all," rued Sarika Singh. City-based fashion designer Ritu Sharma added that the cost of raw material has already gone up and service tax would take it further. "In this case the customers will switch to ordinary tailor and our business will suffer," she wondered.
The hike in service tax is affecting each and every person in the city. Nobody wants to pay extra and the taxes are a burden on people. "The government takes so much amount of money from us in form of taxes. The burden in our life is increasing day by day, while paying the taxes in one form or the other. But the government is not taking any action to improve the condition of roads and power shortage," said Ashish Sinha, a resident of Lucknow.
Watching performances of music and dance will now be a costly affair. "I used to save my pocket money, as the ticket were used to be costly, but now as the rate of tax is further increased I don't know what am I going to do now," said Shubhangi Sharma, a student. Her friend Ankit added that the entry fee for pubs has also gone up. "The night life in Lucknow is not very active, and the revised service tax will only make it dull," said Ish Chopra, public relation manager at a Hazratganj-based lounge.
Shivani Sati, a teacher suggested that the government should impose taxes on things which do not affect a large chunk of people. "They may charge a leisure foreign trips and gala events, but why burden the tax payer?" she questioned.