Service tax hike will deliver all-round blow

The hike in service tax from 12.36 per cent to 14 per cent, as announced in the Budget, is going to ensure that eating out is set to become more expensive. Also, be prepared: going for a movie, ordering flowers, or even getting a haircut is set to be costlier. “By increasing service tax, the Government has directly hiked the price of all things which are under service tax,'” said Umesh Shetty at Saidev Hotel in Andheri, a Mumbai suburb. He added that a decision would be taken to hike the price of certain items on the menu, as the hotelier would end up paying more in taxes. Consumers will have to shell out more even for flight tickets, music concerts, sporting events as well as entry to amusement parks. The tax is also expected to hamper the tourism industry in India, bringing down tourist arrivals by around 50 per cent.

The $20 billion that the country earned from the 7.5 million tourist arrivals in 2014, is expected to slide to less than $12 billion, according to experts.

Gour Kanjilal, Executive Director, Indian Association of Tour Operators (IATO), said the move would lead to multiplicity of taxes. “Tour operators in Jaipur will add their service tax. I will add it in Delhi, and the foreign tourist who plans to visit these places would end up paying service tax thrice over. With this tax, India will not be in any global brochure,” he said.

However, Jaideep Ghosh, Head of Tourism and Hospitality sector, KPMG, said the tourism, travel and hospitality sector overall would benefit within the positive economic outlook facilitated by enhanced investment in infrastructure.

Sachin Menon, COO, KPMG, termed the increase in service tax a precursor to GST introduction. “It would prevent the feeling of steep increase of taxes on service, on introduction of the GST, as the proposed rate under GST is 16 per cent or more. Service industries shall be geared to factor even a higher service tax cost next year,” he said.

The service tax hike has also been termed negative for multiplexes like PVR, and direct-to-home companies such as Dish TV.