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Centres states may shake hands on 18% service tax under GST

gdp_gross_domestic_price_economy_growth_inflation_growth_gst_356x200_5350_356The Centre and states may agree on an 18 percent service tax rate under goods and services tax (GST), a move that could turn most services, which are now taxed at 15 percent, costlier.

Most services, except those in the negative list of essential services such as healthcare and education, will come under GST.

For goods the Centre has proposed a four-tiered GST structure–6, 12, 18 and 26 percent—along with a 4 percent levy on gold.

Within these, two standard rates of 12 percent and 18 percent could extend to a majority of the taxable goods.

Sources, said there is a view within the GST council that services such as telecom and insurance should be taxed at a lower band rate of 12 percent, but the Centre is the opinion that the all taxable services should be clubbed under a single rate of 18 percent.

The GST Council, headed by finance minister Arun Jaitley, will November 3-4 to further discuss the rate structure for both goods and services.

The Centre is also staring at a possible revenue loss of about Rs 50,000 crore after GST kicks in from 2017-18.

This is primarily because under GST, the service tax collections will divided equally between the Centre and the states. Until now, service tax is a central levy, collected only by the Centre.

At Rs 231,000 crore service tax accounts for more than 14 percent of the Centre’s total tax revenues of Rs 16,30,887 crore 2016-17.

“The revenue department has worked out the estimates for potential revenue loss to the Centre because it has to forego half of the service tax collections.

“The Centre’s view is that the rate should be sufficient to take care of its revenues,” the source said.

The Centre, the source said, has argued the need for a fiscally strong Centre cannot be ignored.


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