The Hindu Business Line : 10 more services come under tax net -- Rs 1,400-cr additional mop-up seen

THE next time you pay your life insurance premium, be prepared to dish out 5 per cent extra as service tax. As expected, the Finance Minister has brought 10 more services under the tax net, recognising the growing contribution of this segment to the gross domestic product (GDP).

The impost on these new services will yield the Government extra revenues of around Rs 1,300 crore-Rs 1,400 crore, of which 70 per cent will be accounted for by tax on life insurance, including auxiliary service relating to life insurance, according to the Government's calculations.

Insurance companies are obviously not pleased with the move. Barely hours after Mr Yashwant Sinha presented his Fifth Budget, insurance companies sought a reconsideration of the proposal.

"We believe that the impost will severely impact the industry and add to the cost of insurance. The insurance industry is, by law, investing in the long-term growth of the country and the imposition of service tax will severely impair the ability of the industry in this regard,'' said Mr Anuroop Tony Singh, CEO and MD, Max New York Life.

In a similar vein, Mr Venkatesh Mysore, Managing Director, MetLife India, said the "imposition of service taxes brings the life insurance business on a par with the general insurance sector, but it does place an additional burden on the customer. It also adds to administration overheads, which at some point will impact the final cost of products/services to the customer.''

Revenue authorities contend that they had no choice in the matter. More services had to be brought under the tax net to shore up revenue collections. The realisation from service tax was budgeted to increase to Rs 6,026 crore as compared to Rs 3,600 crore in the revised estimate for 2001-02.

Cable viewers too will be a disappointed, with the Finance Ministry extending the impost to cable operators.

Other new services — in addition to the 25-odd services which are already under the tax net — include cargo handling, event management, rail travel agents, health club and fitness centres, beauty parlours, fashion designers and dry cleaning services.

The only segment which has got a breather is the hotels sector, which has been exempted from service tax for one more year. The service tax on banking entities has been extended to corporate bodies that provide similar services.

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