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Budget 2010 Service Tax retained at 10%
When the Govt had cut service tax rates by 2% in early 2009, in a bid to revive consumer demand, experts were skeptic on the impact it would have. Now that India’s growth is back on track, the Govt is in no mood to rollback measures. In the budget announced today, it has left service tax rates unchanged at 10%.
The FM has however has increase the net of services which will be announced shortly.
Did India Inc expect this?
In a bid to revive consumer demand to boost a flagging economy, the UPA Govt had, in 2008-2009 unveiled three stimulus packages. Among them was a reduction in service tax rate (or the rate at which tax is paid by various service providers) by 2 percentage points to 10%.
This was the first time the service tax rate had been cut since its introduction in 1994. Then, experts had been skeptical about the impact of the cut. Shanti Ekambaram, Group-Head of Wholesale Banking, Kotak Mahindra Capital, had told CNBC-TV18 then, that service tax cuts would put some amount of money in the hands of people and consumers. But, she was not so sure if that would go all the way to boost demand and consumption and thus result in growth.
Of course that was then. Today, it’s quite clear that the Govt’s measures have indeed paid-off. According to latest estimates, the GDP for financial year 2009-2010 is likely to top 7%.
But most experts believed that it was more important to rationalize excise and service taxes and look at the broader picture rather than just tinker with rates as a form of stimulus exit. Which then brings us to the issue of Goods and Service Tax – GST.
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