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GST rollout to make services costlier: Experts

New Delhi: Services like telephony, dining out and banking will get dearer if the recommendations made by the GST panel on the proposed nationwide uniform taxation are accepted. This is because the tax rate will increase to 17-18% from 14.5% at present, experts said.

A Finance Ministry panel headed by Chief Economic Advisor Arvind Subramanian has suggested a ‘standard rate’ of 17-18% on bulk of the goods and services for the entire country.

According to Deloitte (India) Senior Director Saloni Roy: “Services will see rise in prices as the tax rate will suddenly increase from 14% to 17-18% when the GST is implemented.”

The government plans to roll out Goods and Services Tax (GST) from April 1, 2016. A Constitution Amendment Bill is currently stuck in the Rajya Sabha.

The Service Tax was introduced at 5% in 1994 on limited number of services, she said, adding the tax rate has gradually increased to 14%, with the last hike coming in the last budget — Finance Minister Arun Jaitley increased the Service Tax to 14% from 12.36% — and now covers almost of all services with few exceptions.

Presently, the incidence of Service Tax is 14.5% after including Swachh Bharat cess of 0.5%.

There is no clarity whether the Swachh Bharat cess would be subsumed in the GST or it would be levied over and above the standard rate.

BMR & Associates Partner Malini Mallikarjun said that some sectors, like real estate, may not get impacted as they are not included in the GST.

The CEA-headed panel in its report suggested alcohol, real estate, electricity and petroleum should be included in the GST at an “early stage” in future.

Industry chamber Assocham said: “This rate structure is quite appropriate and will be anti-inflationary for indigenous goods, however, the cost of services will go up including some essential services like banking, telecom and information technology (IT).”

The GST panel has suggested dropping of the 1% additional tax on interstate sales and also opposed the inclusion of GST rate in the Constitution.

Describing GST as a historic opportunity to ‘Make in India by Making One India’, the panel recommended a range for revenue neutral rate (RNR) of 15-15.5% for the Goods and Services Tax (GST), with a preference for the lower one.

It also suggested a range of ‘standard’ tax rate of 17-18% for bulk of goods and services while recommending 12% for ‘low rate goods’ and 40% for demerit goods like luxury cars, aerated beverages, pan masala and tobacco. For precious metal, it recommended a range of 2-6%.

The final GST rate would be decided by the GST Council, which will be headed by the Union Finance Minister and have state Finance Ministers as its members.