The sudden announcement by Pranab Mukharjee on the service tax rate cuts is going to give a shot in arm the markets needs. The center has waived off 2% on service tax which now stands at 10%. This may come as a major relief for those industries which are service oriented. These include Courier, IT, Food and Restaurant, travel, retail malls, consultants, Banking and Finance. The indirect effect will be on all the industry segments, which would benefit from the service tax costs reduction in the raw material and production stage. Not all companies would be able to pass on the benefit immediately.
The tax reduction will see spending power to be increased marginally, the effect will be substantial by the month of May. The announcement is seen as a voter attraction technique, however it is ofcourse needed to put the economy on fast wheels.