NEW DELHI: People in India are paying higher taxes when they eat out, and use their mobile phones and credit cards, as the service tax goes up to 14 per cent, from just under 12.5 per cent.
This is to smooth the transition to the national Goods and Services Tax (GST), set to roll out next year. However, what seems like a small rise in tax is stirring up a lot of resentment.
Service tax is very important for us. From mobile phone to everything – its rise is going to impact our family budget to a great extent,” a resident said.
Another said: “Even if the service tax is increased in travelling, where are the facilities? The hike should commensurate with the facilities.”
The tax hike is a step towards the eventual introduction of GST, which is a key economic reform the government is planning to implement from April next year.
The GST Bill seeks to streamline India’s tax administration by eliminating different tax structures in different states.
Akash Jindal, a market analyst from Pure Growth Consultancy, said: “Now the government is moving towards fiscal consolidation, so there is a need to increase the funding power of the government because of various taxes.
So if services are a major source of India’s growth trajectory and will remain in the coming times, a two-percentage point increase in the services tax is going to help the government in a big way.”
The Narendra Modi government stormed to power with the promise of fixing the country’s tax system and reducing the financial burden on the common man. But the recent hike in fuel prices and the inflated service tax have critics questioning Modi’s resolve.
Analysts say Modi’s government must limit that damage or risk having a disillusioned population.
