You may have to shell out more money for services like telecom, air travel, cable, coaching, life insurance and others from next fiscal, as the coming Budget is likely to raise service tax from present 12 per cent to 14 per cent.
Services like legal, medical, sports, education, entertainment, performance of Bollywood actors and other artistes may also come under the tax net, if the states agree to impose tax on these services.
Currently, 96 items are covered under the tax net. States have in-principle reached an agreement with the finance ministry to impose tax on 44 new services, as part of the compensation package for reducing Central Sales Tax from 4 per cent to 3 per cent with effect from April 1.
However, now states are reluctant to do so on all 44 services since many of them like education could evoke public outcry, sources said.
The services, which have a share of close to 60 per cent in the country's economy, contributes just 15 per cent to total indirect tax collections.
The government is looking at the services sector as major contributor to the state's revenue. As against around 6 per cent growth in excise duty by December end this fiscal against year-ago period, revenue from services have gone up by as much as 64 per cent to Rs 25,662 crore (Rs 256.62 billion) and is likely to touch Rs 34,500 crore (Rs 345 billion) this fiscal.
However, with an aim to introduce goods and services tax by 2009-10, Finance Minister P Chidambaram is likely to hike service tax by about 2 per cent, sources said.
The sources said in the forthcoming Budget, if the service tax rates are revised from the current 12 per cent to 14 per cent, the government could easily garner up to Rs 60,000 crore (Rs 600 billion) in 2007-08.
The finance ministry has an informal target of reaching Rs 1,00,000 crore (Rs 1000 billion) from this source by 2009-10. At the present rate of growth, the target does not look unachievable.
Since Prime Minster Manmohan Singh has already given assurance to bring down customs duty to the level of ASEAN, and with SEZs emerging as new tax havens, government may not like to revise excise duties upward.
The only option is to raise service tax, sources said, adding that industrial chambers have also supported this move, while demanding cut in peak customs and excise duties.
However, raising of service tax would directly hit the middle class, already feeling the heat of over 6.5 per cent inflation.
To partially appease the trading community, the Budget can raise the service tax exemption limit from present level of Rs 400,000 to Rs 8-10 lakh (Rs 800,000-1 million), the sources added.