Service tax on senior lawyers, law firms draws mixed response

Centre's move in the Union budget to levy 14 per cent service tax on legal services today drew mixed reactions from law firms and senior advocates with one section saying it would help generate funds for the government while the other maintained it would raise litigation cost.
Those welcoming the proposal announced by Finance Minister Arun Jaitley, himself a noted senior lawyer, dubbed it as a "good decision" which will help government to execute its policies with increase in funds while those disapproving it contended this will "discourage" arbitration and force clients to shell out more money.
"Clients will have to pay more money to lawyers. I can't say if it is a good move or bad. I can only say it will raise the cost of legal services," senior advocate Anil Divan said.

Demanding an outright "abolition" of the move that senior advocates and law firms will no longer be exempted from the service tax of 14 per cent, advocate and President of Society of Indian Law Firms President, Lalit Bhasin said, "It is not a correct proposal."
"This high rate of service would discourage in bringing arbitration to India. India cannot be made an arbitration hub as clients will go outside the country. Prima facie it should be abolished till the bill is passed," he said.
However, senior advocates Shanti Bhushan and K K Venugopal were of the view that it was a good decision to levy 14 per cent service tax on senior advocates who charge higher fees from clients.

"There is no harm in levying service tax on lawyers as government needs funds to execute its policies. Nothing wrong if legal services become a bit more expensive," Bhushan, who was also a Law Minister from 1977 to 1979 in the Morarji Desai Ministry, said.
Expressing similar view, Venugopal said, "It is a good decision. Senior advocates should be made to pay as they already charge higher fee. I don't think it will affect the clients.