Effect of BUDGET 2012-13 on Service Sector

Group :4

1. Abhilash Vangri (01),2. Deepali Jukar(03)3. Jaimin Joshi (08),4. Poonam Mahajan (13),5. Rachana Shetty (14),6. R.Deepak Chandra(15).

Introduction• Growth in services has almost outperformed the GDP

for the past 15 years.• In the past six, compounded annual services growth

of 10.2% has stayed ahead of the 8.6% GDP growth. • It's not just urban consumption that is being fuelled

by services, a fairly substantial chunk of rural demand is also being driven by them.

• Services account for 683 out of 1,000 jobs in cities and 241 out of every 1,000 in villages, according to National Sample Survey Organisation's report.

• Finance Minister Pranab Mukherjee proposed to raise the service tax to 12 percent from the existing 10 percent that will yield an additional revenue of Rs.18,600 crore.

• The share of services in GDP is 59 percent.

COSTLIER

• Two-wheelers• Cars• Commercial vehicles• Refrigerators • Air-conditioners• Washing machines• Watches • Soaps• Cosmetics• Homecare items• Cigarettes and bidis• Packaged food items

• Pan masala and chewing tobacco• Unbranded precious metal

jewellery• Imported luxury vehicles• Imported bicycles and bicycle

parts• Imported digital still cameras• Imported gold bars and coins of

certain categories, platinum • Imported cut and polished

coloured gem stones• Air travel, eating out at

restaurants and hotel stays

• Finance minister has also proposed to raise the exemption for the monthly charges payable by a member to a housing society from Rs.3,000 to Rs.5,000.

Increased service tax will not be levied on the following i.e. Negative list

• Travel by metered taxis, radio taxis and auto rickshaws

• Entry to amusement facilities• Admission to entertainment events• Second-class rail travel• Betting, gambling and lottery• Funeral, burial, mutate services• Transport of deceased

In addition to the 'negative list', there is a list of exemptions which include

• Health care • Services provided by charities• Religious persons• Sportspersons• Performing artists in folk and classical arts• Individual advocates providing services to non-business

entities• Independent journalists• Services by way of animal care or car parking.

Impact on various sectors

• Housing prices likely to rise on increase in service tax

Application of Tax Deducted at Source on the purchase and sale of property and increasing Service Tax by 2 per cent will further add on to the overall cost of property and are bound to make property more costly in coming days

Hotel sector concerned over increase in service tax

• This will negatively impact the industry. However, the reduction of cascading taxes by providing tax credits expected offset this. Also, the allowing 100 per cent deduction to the franchise model (operated by other) is positive to the sector.

• Industry Expectations not fulfilled:

Grant infrastructure status to �Hotel industry not fulfilled�

Increase the depreciation of �hotel building to 20 per cent from the current 10 per cent levels not fulfilled�

Exempt the industry from the �multiple taxes partly fulfilled�

Aviation Impact-Neutral• Service tax increased; external

commercial borrowings (ECB) allowed up to $1 billion for working capital requirements; withholding tax on interest payments on ECB proposed to be cut from 20% to 5% for three years; custom duty exemption for imports of certain parts, testing equipment for maintenance, repair, and operations services.

Banking/Finance Impact-Positive

• Financial holding firm for PSU banks’ capital requirements; banks to be recapitalized by Rs. 15,888 crore; tax-free bonds limit doubled; credit guarantee trust funds for financing housing and educational loans; credit flow to farmers hiked; more interest subvention of 3% for farmers repaying promptly.

Let’s check how this rise in service tax affects an individual’s budget

REFERENCES: www.wikipedia.com

Crisil Budget analysis

Economic times, 17th March 2012 edition

Times of India, 17th March 2012 edition