Hyderabad: The state government is planning to expunge the phrase “licence fee” from the Excise department’s vocabulary to avoid paying 15 per cent service tax to the Centre. The government has sought the help of top tax consultants to replace “licence fee” with any other term that won’t attract service tax.
The licence fee collected by government to grant licenses to bars, liquor shops, restaurants, clubs etc. attract 15 per cent service tax as per the new norms brought in by the Centre in this year's budget.
The government, which gets nearly Rs 3,500 crore from licence fees, would lose Rs 500 crore as service tax on account of the new norms. “Excise remains the major source of revenue for the state government after commercial taxes. Last year, the government earned nearly Rs 12,000 crore from excise. This year, the target has been increased to Rs 13,000 crore. Of this, Rs 3,500 crore has to come by way of issuing licences to bars, hotels, clubs etc. However, there will be a revenue loss of nearly Rs 500 crore if service tax is paid as per the Centre’s fresh norms,” said an official of the Excise department.
Over 800 bars, clubs etc. are due for licence renewals this year but the government has halted the process fearing payment of service tax to the Centre. These licences expired on June 30, but the state government has extended the deadline by three months to buy time.
The Centre has increased service tax from 14 per cent to 15 per cent, with the addition of 0.5 per cent Krishi Kalyan cess from April 1, 2016 and 0.5 per cent Swachh Bharat cess from June 1, 2016.
Owners of bars, liquor shops, clubs have put forth a condition that they would pay service tax on their own if the government reduced licence fees accordingly as they were paying higher licence fees of nearly Rs 1.10 crore to set up a liquor shop and nearly Rs 40 lakh for a bar in GHMC limits. Excise officials have met tax consultants in Mumbai and sought their help on how to collect licence fees without attracting service tax.