Budget 2014: Government Widens Services Tax Base; Targets Rs 7,525 Crore More

Various services including radio- cabs and online ads are set to become costlier as government today widened the service tax base to mop up an additional Rs 7,525 crore from the segment this fiscal.

Presenting his maiden Budget for 2014-15, Finance Minister Arun Jaitley also withdrew exemptions given to services of air-conditioned contract carriages and testing of new drugs on human participants to broaden the tax base. Advertisements on online/mobile media have also been brought under the services tax net. However, sale of space for ads in print media has been excluded.

Besides, services provided by radio-taxis would now come under the indirect tax on par with services of rent-a-cab.

In the current fiscal, government envisages to collect about Rs 2.16 lakh crore from taxes on services, up about 31 per cent from Rs 1.65 lakh crore in 2013-14.

"In recent times, among indirect taxes, service tax has shown the highest rate of growth... To broaden the tax base in service tax, it is necessary to prune the negative list and exemptions to the extent possible. Accordingly, the negative list has been reviewed." Jaitley said.

However, to promote growth in transport of goods through coastal vessels, tax has been reduced on them.

Besides, giving in to demand of tourism sector, Indian tour operators have been exempted from the tax net for extending services outside the country to foreign tourists.

"A long standing demand of this sector has been to allow Cenvat credit for services of rent-a-cab and tour operators. I now propose to allow credit in the same line of business," the Finance Minister said.

Also, amongst other exemptions, services such as loading, unloading, storage, warehousing and transportation of cotton would not attract any tax.

"Managing service tax has become a major area of concern for the industry, and a lot was being expected in terms of measures aimed at tax certainty and simplicity," said Siddharth Mehta, Partner - Indirect Tax, KPMG in India.

"While the Finance Minister did not elaborate on these aspects in his speech, one hopes they will find place in the fine-prints," he said.

Services provided by common bio-medical waste treatment facilities have also been kept out of tax net.