Among the 120 services that are currently being taxed, a vast majority is likely to come under the goods and services tax (GST) slab of 18%, while a clutch of them including air travel services, renting of hotels, restaurants and other “bundled” food supply services could get taxed at 12%. A handful of services including transport of goods by road (trucks) and rail and financial leasing including hire purchase could fall under the lowest GST rate of 5%.
While the principle that underlies the GST rates fitment, recommended by a committee of officials, is to minimise rate shocks, services would still be the category to witness rate hikes the most as the country adopts the new indirect tax structure, official sources said. Since the current service tax rate is 15% (including the 0.5% Swachh Bharat Cess and an equal Krishi Kalyan cess), levy of GST at 18% would mean a significant increase in the tax liability of consumers of most services.
Even for the relatively smaller number of services to be taxed at 12% in the GST regime, the tax incidence could actually increase in some cases. This is because taxes paid after the abatements permitted by the government work out to be lower than 12% in many such cases at present.
For example, restaurant services are currently taxed with 30% abatement, which means actual tax incidence of 10.5%. This could increase to 12% in the GST regime, rather than decrease to 5%.
Apart from final approval to the rates, the GST Council is expected to okay the five draft rules related to accounts and records, advance ruling, appeals and revision, assessment and audit and e-way bill. So far, the Council has approved nine GST rules in its earlier meeting.