About a dozen new services are likely to be brought under the service tax net from fiscal 2008-09, even as the rate could be increased from 12 per cent.

Last year, the government had considered raising the rate to 14 per cent but the move was shelved on account of fears of inflation, which was ruling at 6.5 per cent in January 2007.

Taxing Times

• All unaided non-government schools and colleges, unaided non-government hospitals and amusement parks will be brought under the service tax net
• To tax all these services, the Finance Act 1994 is expected to be amended in the coming Budget session.
• An increase in the service tax ambit and possibly the rate is seen as a precursor to the introduction of a dual Goods and Service Tax from April 2010 onwards.

For the week ended December 29, the inflation rate stood at 3.5 per cent, raising the possibility that service tax rates will increase.

The new services likely to be included in the service tax net are legal draft writing and stamp paper vending, all unaided non-government schools and colleges, unaided non-government hospitals, amusement parks and similar attractions, coin-operated amusement machines and other recreation and amusement services.

These six new services have been recommended for inclusion in the list of taxable service by the Empowered Committee of State Finance Ministers from 2007-08 onwards.

Several other services are also likely to be brought under the service tax net, which now covers 100 services.

To tax all these services, the Finance Act 1994 is expected to be amended in the coming Budget session.

A constitutional amendment may also be needed to insert an enabling provision giving state governments powers to levy service tax, a key demand of the states.

"States are already allowed to collect and appropriate service tax. However, they do not have the powers to levy the tax," a government official explained.

An increase in the service tax ambit and possibly the rate is seen as a precursor to the introduction of a dual Goods and Service Tax -- at the state and central levels -- from April 2010 onwards.

Besides getting a 30.5 per cent share from 67 services, states receive the entire revenue from 33 services from 2007-08 as part of a compensation package to phase out central sales tax by 2010.

The central government has also agreed to transfer 44 new services to the states for taxation.