labels: industry - general, economy - general, governance, union budget 2006
Service tax: Killing us softly? news
Venkatachari Jagannath
28 February 2006

Little drops of water, they say, make the mighty ocean. This is the story of service tax. From Rs1,586 crore in 1997-98 - earned from few services like telecom, insurance, etc, taxed at 8 per cent - the amount under the service tax head has ballooned out to a massive Rs34,500 crore, at 12.2 per cent. The tax rate has been going up at regular intervals, and the number of services brought under the service tax net has been expanding every year.

Car prices may have come down, but services we use daily like telephones and the internet have become more expensive. This year, bank ATM services have been brought under service tax.

Insurance industry experts have started questioning the rationale behind charging a service tax on insurance premiums. Says G V Rao, former CMD, Oriental Insurance Company Limited, "What a policyholder gets on paying the premium is a promise to be compensated if a loss occurs. What is the service involved here? It''s like levying tax on a savings bank account, on the ground that the bank receives and pays cash, and issues a pass book."

The tax proposals in this year''s budget that impact an individual:

  • Increase in service tax rates and services
  • Increase in the securities transaction tax by 25 per cent, affecting investors
  • The bank withdrawal tax continues
  • Continuation of fringe benefit tax
  • Treating open-ended and close-ended equity schemes of mutual funds equally for the purpose of dividend distribution tax
  • Including bank fixed deposits under Section 80C of the Income Tax Act
  • Scrapping the Rs10,000 tax exemption limit on investment in pension schemes. Now investments in pension schemes will be qualified under Section 80C, and the maximum investment limit will be Rs1 lakh.

Depressed by the tax rate hikes and want to have a puff? Sorry, even cigarettes will be costlier owing to a 5-per cent increase in the excise duty.

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Service tax: Killing us softly?