Economic think-tank NCAER has said that service tax will go up by one per cent per annum in the next four years, following the government's decision to introduce goods and services tax from April 1, 2010.

"The roadmap for service tax is clear. It will gradually go up and align with the highest CENVAT rate of 16 per cent and one can expect an average service tax rate increase of one per cent per annum," National Council of Applied Economic Research said in its monthly report.

The contribution of service tax to the exchequer would be consistent with its contribution to GDP once the scope of service tax is increased on all services and aligned with the highest CENVAT rate, it added.

The report welcomed the announcement made by Finance Minister P Chidambaram that India will move towards a national level GST from April 1, 2010.

"This is important, as in our view, this gives a policy direction for indirect taxes," it felt.

On the implications of the Budget for growth, the report said that with the lowering of excise duties and the reduction in customs duty on non-agricultural products, the consumption growth would not come down.

The report also held that prices of manufactured products would remain stable.

"Although, a countervailing duty of four per cent is levied on virtually all imports, the full crediting of this duty will be allowed to manufacturers of excisable goods. This will ensure that prices of manufactured products remain stable," the report pointed out.

The government has decided to levy CVD of four per cent on all imports to protect domestic industries from cheap imports of finished goods.

Since CVD is cenvatable it would not impact domestic industries that pay this levy on import of raw material and intermediaries.

The report said that the budgeted growth of 19.4 per cent in net tax collection and 19.5 per cent in gross tax collection seemed plausible if the current buoyant growth continues next year also.

However, it said: "At the sectoral level, the revenue growth target for corporation tax and custom duty collection appear optimistic and the income tax and excise duty targets seem pessimistic."

With both a widening and deepening of the service tax and the growth momentum of the service sector, the service tax growth targets are also very pessimistic, it added.

On the tax proposals, the report said that they were in line with the general expectation of stability in rates.

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