Having noted that service sector contributed as much as 54 per cent of the GDP, Finance Minister P Chidambaram on Tuesday proposed to raise service tax rate from 10 to 12 per cent and widen the net to double the collections to Rs 34,500 crore* in 2006-07.

During 2005-06, government is likely to collect Rs 23,000 crore (revised estimates) against the budget estimate of Rs 17,500 crore.

The increased service tax rate would be applicable from the date of enactment of Finance Bill 2006, he said in his Budget 2006-07 presentation.

The minister has brought 15 new services in the net and new areas include share transfer agents, registrars, ATMs, sale of space for advertisement other than in print media, sponsorship of events other than sports, international air travel other than economy class, public relation (PR) services and internet telephony, among others.

Credit card, debit card and other payment card related services have been brought under the service tax net.

The minister has also withdrawn exemption from service tax to six services including call centre, re-insurance premium received from both domestic and overseas and others.

This would come into effect from March 1, 2006.

Chidambaram exempted all taxable services provided by Reserve Bank of India [Get Quote] from service tax liability.

Proposal to set April 1, 2010 as the date for introducing national level Goods and Service Tax (GST); service tax rate increased from 10 per cent to 12 per cent as another step towards converge between service tax rate and the CENVAT rate; net impact likely to be very small in view of credit available for service tax or excise duty payable.

New services to be covered, including:

• ATM operations, maintenance and management;
• Registrars, share transfer agents and bankers to an issue;
• Sale of space or time, other than in the print media, for advertisements;
• Sponsorship of events, other than sports events, by companies;
• International air travel, excluding economy class passengers;
• Container services on rail, excluding the railway freight charges;
• Business support services;
• Auctioneering;
• Recovery agents;
• Ship management services;
• Travel on cruise ships; and
• Public relations management services.

Coverage of certain services now subject to service tax to be expanded.

• Leasing and hire purchase to be treated on par with loan transactions, interest and instalment of principal amount to be abated in calculating value of the service.

1 crore = 10 million