Now that the GST has been pushed back to 1st July 2017, there will be a budget which could include changes for the Service Tax. Presently the Service Tax is at 14% with two cesses of 0.5% each for a total rate of 15%. The rate for services has not been confirmed and it is possible that there could be one, two or three rates assigned for services.

With present Service tax, SBC and KKC cesses are levied

Probable service tax rates in next financial year till GST is rolled out

Each of these modules are impacted with the change to GST.

It is not clear which route will be taken but it seems unlikely any services will be pegged to the 28% rate under the GST. However, even if the one rate scenario is adopted there is a 3% difference between the Service Tax rate and the proposed GST rate of 18% which opens the possibility that the government in the upcoming budget could push the Service Tax rate higher to 16%, 17% or 18% to reduce price shocks.

Another possibility is the government will bifurcate the services sector into two tiers ahead of the 18 February GST Council meeting between the 12% and 18% rate thereby allowing the Service sector time to adjust to the new rate slabs. Essentially giving everyone a preview of the GST applicability to services ahead of the 1 July 2017 implementation date. What is not clear is if the rates are changed, if the abatements that are given to services such as catering will be eliminated or remain constant. All of this means there could be more work for the service sector after the budget speech right up to the GST introduction.

Service sector companies are already preparing for a GST which includes the requirement to determine place of supply at the state level and preparing for a monthly compliance requirement which will now require them to reconcile goods transactions along with service transactions.

More information will be available after the Budget Speech on 1 February 2017.

by Anil Kuruvilla.

He is an international Taxation Expert and Chief Content Officer at Adaequare (Parent company of Udyog Software).


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