India Increase service tax rate

India raises service tax rate to 14%

As of the 1st of June 2015 India’s service tax has increased to 14%, this is a 1.64% rise in the effective VAT rate which was previous 12.36% made up of 12% Service Tax and 2% surcharge for education on the 12%. The service tax currently affects all services except for a select few.

This is part of the transition over to Goods and Services Tax (GST) which is set to roll out in April 2016, the GST Bill seeks to streamline India’s tax administration by eliminating different tax structures in different states, as India operates one of the most intricate and ineffective consumption tax regimes in the world. There are a number of taxes, including:
• Indian VAT levied on goods separately by most of the 29 Indian states
• Indian Service Tax which is charged on services
• CENVAT a VAT on the supply of goods charged by the central government
• Professional Tax

This means that often the taxes over lap resulting in double taxation, and also imposes a heavy administration burden on businesses, meaning that the government finds it hard to forecast a budget as the tax system is so unstable they cannot predict revenues accurately. This is why they plan to introduce the country-wide GST. GST will be levied on the supply of goods and services, with potential reduced rate and exempt supplies for essential supplies such as foodstuffs and public transport, which is expected to be implemented at around 16%, the current rise to 14% is just the first stage in this tax overhaul.