Budget 2012: Service tax rate hiked to 12%

Telephone use, eat-outs and other activities will cost more as Finance Minister Pranab Mukherjee proposed increasing the service tax rate to 12 per cent from 10 per cent and introducing a negative list aimed at bringing more services under the tax net.

"I propose to raise the service tax rate from 10 per cent to 12 per cent ... My proposals from service tax are expected to yield an additional revenue of Rs 18,660 crore," Mukherjee said while presenting the Budget for 2012-13.

The government has estimated to collect Rs 95,000 crore from service tax in the current fiscal and has pegged the next year's target at Rs 1.24 lakh crore.

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"I propose to tax all services except those in the negative list. The list comprises 17 heads and has been drawn up, keeping in view the federal nature of our polity, the best international practices and our socio-economic requirements," Mukherjee said.

The services not under the negative list will attract 12 per cent service tax. Last year, the Centre had proposed a negative list containing 22 services. Tax at the rate of 10 per cent is currently levied on 119 services.

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The services that comprise the negative list include those 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 metered cabs, and agriculture and animal husbandry.