157. I shall now turn to indirect taxes. In a slight
departure from the previous years, I shall begin with Service Tax.
Service Tax
158. At the end of June this year, this tax will attain
adulthood by completing 18 years. It is therefore time to shift gears and
accelerate ahead. However, service tax needs to confront two important
challenges to sustain the journey. These are:
• The
share of services in taxes remains far below its potential. There is a need to
widen the tax base and strengthen its enforcement;
• Service
Tax law is complex and sometimes avoidably different from Central Excise. We
need to bring the two as close as possible in the light of our eventual goal of
transition to GST.
I
have attempted to address both these issues this year.
160. Thus, I propose to tax all services except those
in the negative list. The list comprises 17 heads and has been carefully drawn
up, keeping in view the federal nature of our polity, the best international
practices and our socio-economic requirements.
161. The important inclusions in the negative list
comprise all services provided by the government or local authorities, except a
few specified services where they compete with private sector. The list also
includes pre-school and school education, recognised education at higher levels
and approved vocational education, renting of residential dwellings,
entertainment and amusement services and a large part of public transportation
including inland waterways, urban railways and metered cabs.
162. Agriculture and animal husbandry enjoy a very
important place in our lives. Practically all services required for
cultivation, breeding, production, processing or marketing up to the stage the
produce is sold in the primary markets are covered by the list.
163. In addition to the negative list, there is a list
of exemptions which include health care, services provided by charities,
religious persons, sportspersons, performing artists in folk and classical
arts, individual advocates providing services to non-business entities,
independent journalists, and services by way of animal care or car
parking.
164. To take financial services to the door steps in
rural areas, I have also exempted the services of business facilitators and
correspondents to banks and insurance companies.
165. Construction services relating to specified
infrastructure, canals, irrigation works, post-harvest infrastructure,
residential dwelling, and low-cost mass housing up to an area of 60 sq. mtr.
under the Scheme of Affordable Housing in Partnership are also included in the
exemptions. To make the life of those who already own an apartment a little
easier, I propose to raise the exemption for the monthly charges payable by a
member to a housing society from ` 3,000 to `5,000.
166. The Year 2012 marks the beginning of the centenary
year of Indian cinema. Despite the
change in titles from Dada Saheb Phalke’s “Raja Harishchandra” to “Ra. One” in
recent times, the industry has played a pivotal role in unifying our country in
the wake of her considerable diversity. To add to their spirit of celebration,
I propose to exempt the industry from service tax on copyrights relating to
recording of cinematographic films.
167. Movement towards the negative list will result in
reducing nearly 290 definitions and descriptions in the Act to 54, and the
exemptions from the existing 88 to 10, of course merging some of the existing
exemptions into a revised notification. In terms of number of pages, the law
will be shorter by nearly 40 per cent.
168. As a measure of harmonisation between Central
Excise and Service Tax, a number of alignments have been made. These include a
common simplified registration form and a common return for Central Excise and
Service Tax, to be named EST-1. This common return will comprise only one page,
which will be a significant reduction from the 15 pages of the two returns at
present.
169. Revision Application Authority and Settlement
Commission are being introduced in Service Tax to help resolve disputes with
far greater ease.
170. Cascading of taxes has been significantly reduced
by permitting utilisation of input tax credits in a number of services such as
catering, restaurants, hotel accommodation, pandal and shamiana and transport
sectors.
171. Place of Supply Rules, that will determine the
location where a service shall be deemed to be provided, are being placed in
public domain for stakeholders’ comments and shall be notified when the
negative list is put into effect. These rules will also provide a possible
backdrop to initiate an informed debate to assess all the issues that may arise
in the taxation of inter-state services for the eventual launch of GST.
172. I propose to set up a Study Team to examine the
possibility of a common tax code for service tax and central excise which could
be adopted to harmonise the two legislations as much as possible at the right
time.
173. While the problems faced by exporters of goods
with respect to taxes on input services was addressed earlier this year, disbursement of taxes that go into the export
of services has been an irritant for long. I now announce a new scheme that
will simplify refunds without resorting to voluminous documentation or
verification. As an added incentive, such refunds will also be admissible for
taxes on taxable services that have been exempted.
174. Rules pertaining to the Point of Taxation are also
being rationalised, providing greater clarity and removing the irritants.
Cenvat credits in a number of areas are being restored. There are a number of
other proposals both for the facilitation of business and to check
malpractices. I do not wish to take the valuable time of this House for
discussing all these proposals.
175. You will notice that most of these measures are
guided by the need to move towards a system that is simple, equitable and
progressive but are unlikely to make the exchequer richer in any significant
way. Looking at our vast commitments and to maintain a healthy fiscal situation,
I propose to raise the service tax rate from 10 per cent to 12 per cent, with
consequential changes in rates for services that have individual tax rates.
176. My proposals from service tax are expected to
yield an additional revenue of ` 18,660 crore. Keeping in mind that the share of
services in GDP is 59 per cent, you would agree that the proposed increase is
not too harsh.
I
shall now deal with proposals relating to the other indirect taxes.
177. In the wake of the global financial crisis in
2008-09, the standard rate of excise duty for non-petroleum goods was reduced
from 14 per cent to 8 per cent in a phased manner. This rate was raised from 8
per cent to 10 per cent in Budget 2010-11. Given the imperative for fiscal
correction, I propose to now raise the standard rate from 10 per cent to 12 per
cent, the merit rate from 5 per cent to 6 per cent, and the lower merit rate from 1 per cent to 2 per
cent. However, the lower merit rate for coal, fertilisers, mobile phones and
precious metal jewellery is being retained at 1 per cent.
178. Large cars currently attract excise duty depending
on their engine capacity and length. In keeping with the increase proposed in
the standard rate, I propose to enhance the duty from 22 per cent to 24 per
cent. In the case of cars that attract a mixed rate of duty of 22 per cent + `15000 per vehicle, I propose to increase the duty
and switch over to an ad valorem rate of 27 per cent.
179. No change is proposed in the peak rate of customs
duty of 10 per cent on non-agricultural goods. Barring a few individual items,
the rates below the peak are also being retained.
180. I shall now take up relief proposals for specific
sectors – especially those under stress. These have been formulated to
stimulate investment and manufacturing growth. 
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