Worried about a steep rise in service tax when the goods and services tax (GST) is rolled out, the government is considering a two-rate structure to minimize the impact on consumers.
Key services may be taxed at a lower rate to give relief to consumers who saw the levy increase to 14% this year from 12.36%. “There is a thinking that some essential services be taxed at a lower rate.”
The government is looking at calling a short session to get the crucial legislation passed in time to roll out the new tax regime from April 1, 2016. While the service tax rate will increase under the GST regime – likely to 18% or more ” there will be a substantial reduction in taxation on goods as the new regime will eliminate the so-called cascading of tax.
Some sections in the government feel there should be a mechanism to lower the burden of a jump in service tax, such as the two-rate option. This will also ensure that the negative and exempted list of services under the new regime is kept minimal to widen the tax base.
The single-rate GST will replace a series of levies including central excise, service tax, state value-added tax, entertainment tax, octroi, entry tax, luxury tax and purchase tax.
Further there is feeling among the experts that “Having two rates of GST for services will create issues of classification and disputes in case of bundled and mixed supplies but the same would get clarified once the GST bill will get notifed.