Credit card bills, air tickets, restaurants bills and mobile phone bills are among things that are likely to get dearer with the government contemplating another round of service tax rate hike to 17.5% from the existing 14.5%.Senior officials in service tax department, who are familiar with the developments, told dna that the government will moot the hike in the coming Union Budget, expected to be unveiled by February-end.

"The consultation on service tax rate hike is going on, in view of the transition to the Goods and Services Tax (GST) from the present multi-tax system like excise duty, value-added tax (VAT), etc.," said one of the officials.

This rate hike would be a part of recommendations by Arvind Subramanium Committee, which had been mandated by the government to set a revenue-neutral rate (RNR) for GST, and called for a standard rate of between 16.9% and 18.9%. The suggested rate would be divided into Central and State GST respectively. However, these are yet to be decided by the GST council.

Tax experts argue that the government is just taxing the masses in the name of GST and dampening the ease of doing business. "This is inflationary in nature and the government should first implement the GST before hiking the taxes in anticipation that the bill would be approved by opposition in the Upper House," said Amit Sarkar, national leader (indirect taxes) at Grand Thronton India, a forensic audit firm.

"What if the GST does not come into force this year? Then technically, the consumer has to carry the burden till the time it gets implemented," Sarkar said.

The government already hiked the service tax in its 2015 Budget from 12.36% to 14.5% on the ground that GST would be passed in the current fiscal. However, there has been strong opposition by political opponents on various issues ranging from the rate of GST to states’ own conditions.

Expert says the service tax payers are already overburdened. As per the new rule of service tax, if you are not able to pay service tax up to one year, the department will charge you interest by 18%, and beyond two years, it will go to 24% and then, 30% in case of delayed by more than two years.

Gautam Khattar, partner, (indirect tax) of PwC, told dna, "Increase in service tax is expected as we converge our laws and processes towards GST. It however needs to be ensured that in such time a seamless credit system is in place. The increase in rate does not become an additional burden on business."

Tax experts also feel that the government’s additional expenditure in terms of one-rank-one-pay (OROP) pension scheme and seventh pay commission, which individually would add cost up to Rs 1.02 lakh crore, might have triggered the immediate need for a hike.

Service tax usually contributes around 30% of the total indirect tax collections. Till November, the service tax grew 25%, making it 61% of the budget target of Rs 2.09 lakh crore.

The major rider of the growth is technically the change in the tax rate from 12.36% to 14.5% (including Swachh Bharat cess of 0.5% on all services). To garner more revenues from the service tax, the government has widened the tax base by including services such as sports events, amusement parks and mutual fund agents, among others.

Among these, the service tax levy on ’aggregators’ who are just a platform providers – such as Flipkart, Uber, etc., – has also led to a significant increase in tax volumes this fiscal.