Taxation
Economy & Nation Exclusive
Paying more and more taxes indirectly
In June 2015, the Modi government increased service tax to 14% from 12.36% and now there would be an additional cess of 0.5% on this. Never mind, indirect tax collections are already growing at about 36% and till October 2015, the government has achieved 60% of its targeted collection for FY16
 
The Narendra Modi-led National Democratic Alliance (NDA) government has decided to levy additional 0.5% as Swachh Bharat cess on all services, which are liable to pay service tax. With the imposition of the cess, the service tax rate will go up to 14.5% from 14% on all taxable services. 
 
The Swachh Bharat cess, the statement issued by the government said, will be levied only on the portion of taxable services (after abatement i.e. on the net taxable value) and will go towards funding of the government's cleanliness drive. The Swachh Bharat cess is not a cess on service tax, but has to be levied at 0.5% on the value of the taxable service. During the Budget 2015-16, Finance Minister Arun Jaitley has proposed to levy the Swachh Bharat cess at a rate of 2%. He had said, "It is also proposed to have an enabling provision to levy Swachh Bharat Cess at a rate of 2% or less on all or certain services if need arises. This Cess will be effective from a date to be notified. Resources generated from this cess will be utilised for financing and promoting initiatives towards Swachh Bharat."
 
What is annoying in the Central government's notifications issued so far is it raises more questions for taxpayers as well as Chartered Accountants and tax consultants. For example, there are two notifications issued on 6 November 2015 about Swachh Bharat Cess. In addition, there are three more clarifications on the same subject issued on 12 November 2015 by the Central Board of Excise and Customs (CBEC). This clarification business has been making both taxpayers and consultants panic and there is a need to issue a comprehensive notification on such issues.
 
What is affected?
 
From 15th November, due to imposition of the additional cess, eating out, telephone bills and travelling will became expensive. Travelling includes first class season as well as AC tickets on railways. 
 
Service tax is presently levied at alternative rates in respect of service provided by air travel agents, life insurance service, service in relation to sale or purchase of foreign exchange including money changing and service by lottery distributors or selling agents, subject to fulfilment of conditions prescribed under the Service Tax Rules. Option has been provided for levy of Swachh Bharat Cess also at alternative rates in respect of the above mentioned services. 
 
The alternate rate of Swachh Bharat Cess would be:
Service Tax Liability (at the alternate rate) X 0.5/14.
 
As regards the taxable value for the levy of Swachh Bharat Cess, it would be the same on which service tax is levied. Swachh Bharat Cess would be calculated on abated value or value arrived at under the Service Tax (Determination of Value) Rules, 2006, as the case may be. For example, the effective Swachh Bharat Cess in respect of services provided in relation to serving of food or beverages by a restaurant, eating joint or a mess, having the facility of air–conditioning or central air-heating in any part of the establishment, would be 0.5% of 40% i.e. 0.2%. The cumulative service tax and Swachh Bharat Cess liability would be 5.8% (14.5% of 40%) of the total amount charged.
 
Service tax on restaurant bills will go up to 5.8% from 5.6% following the levy of 0.5% Swachh Bharat, or Clean India, cess. The finance ministry has clarified that for restaurants or eating joints having air-conditioning facility, the cess would be 0.5% of 40% of the billed amount that is 0.2%.
 
How much the government would garner?
 
This additional cess is expected to fetch the exchequer about Rs3,800 crore in the remaining months of FY2015-16. It is noteworthy to mention that while the Central government would receive all the money, it is the responsibility of the local bodies to keep the environment clean. But there is no mention in the notification as to how this amount collected under Swachh Bharat cess would be passed on to local bodies. It only says, proceeds from the Swachh Bharat cess would be credited to the exchequer and the Central government, after due appropriation from the Parliament, utilise it for financing and promoting Swachh Bharat initiatives or any other related purpose.  
 
Another interesting point is just in June 2015, the government had increased service tax rates to 14% from 12.36%. Even in monetary terms, the indirect tax collections of the government, including central excise, service tax and customs duty, grew 35.9% during April-October 2015 to Rs3.83 lakh crore. 
 
In percentage terms, the central government has achieved 59.2% of its target collection for FY2015-16, just in first seven months till October. And even if considering the same trend for rest of the year, the government would easily surpass its target of Rs6.46 lakh crore for indirect tax collection.
 
Looking at the higher collections, basic question that comes to mind, is whether there was really any need to levy Swachh Bharat cess, which as per current estimates could garner just about Rs12,000 crore per annum? The government had already collected additional Rs23,348 crore during April-October period due to increase in service tax. During the same period, collections under service tax increased 26.1% to Rs1.13 lakh crore from Rs89,379 a year ago. In the Budget 2015-16, the government has estimated to collect Rs2.09 lakh crore from service tax.
 
Revenue collection under indirect taxes grew at 35.9%
 
According to a statement released by the Central government, during April-October 2015, total indirect tax collection increased by 35.9% over same period last year, suggesting a healthy growth in the underlying tax base. In monetary terms, the indirect tax revenue (provisional) collections increased to Rs3.83 lakh crore during April-October 2015 from Rs2.82 lakh crore during April-October 2014. In the month of October 2015 alone, the collections increased to Rs58,691 crore from Rs42,897 crore in October 2014.
 
In case of service tax, collections increased to Rs1.13 lakh crore in April-October 2015 from Rs89,379 crore during same period a year ago, thereby registering an increase of 26.1%. 
 
 
"These collections reflect in part increase due to additional measures taken by the Government from time to time, including the excise increases on diesel and petrol, the increase in clean energy cess, the withdrawal of exemptions for motor vehicles, capital goods and consumer durables, and from June 2015, the increase in Service Tax rates from 12.36% to 14%," the statement says. 

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COMMENTS

LALIT SHAH

2 years ago

Lootmar ki SARKAR is Modi SARKAR nothing eals

Praveen Mohan

2 years ago

Swachh Bharat was supposed to change mindset of people towards cleanliness. This cess has turned it into just another govt scheme which is bound to fail. Instead Modi should have started a fund for Swachh Bharat where people could donate. When people donate for a cause, they feel connected to the cause. This could have made Swachh Bharat a success. But now it is bound to fail.

jaideep shirali

2 years ago

To me, a reason for the increase in service tax and addition of cess, is to pay the babus the largesse that the Seventh Pay Commission has recommended. The Government is so busy paying itself, that from now on, one can expect to be charged for every service, which the government staff should actually be doing. Could'nt the cess be avoided by paying Rs.12,00 crores less than the Pay Comm award? This is absolutely unethical. But we're told acchhe din are still to come, so God help us.

REPLY

Ankur Bhatnagar

In Reply to jaideep shirali 2 years ago

Yes, you are right. We are having to pay increased tax to support the weight of a government that is getting only fatter.

The need of the hour is in fact just the opposite. The taxes need to be reduced.

Over the years the function of the government has changed from governance to be a distributor of benefits. The government jobs are no longer seen as meant to serve a purpose but as something to be given away to provide employment. Nearly half the people in government are hired just to feed their families for their life time (including pension). In the end it is the hardworking people in the private sector who are left holding the baby. The baby keeps getting heavier at the cost of the ability of the people holding it as the taxes continue to rise.

jaideep shirali

2 years ago

To me, a reason for the increase in service tax and addition of cess, is to pay the babus the largesse that the Seventh Pay Commission has recommended. The Government is so busy paying itself, that from now on, one can expect to be charged for every service, which the government staff should actually be doing. Could'nt the cess be avoided by paying Rs.12,00 crores less than the Pay Comm award? This is absolutely unethical. But we're told acchhe din are still to come, so God help us.

Sunil Rebello

2 years ago

A stage will come that a common man will stand up and fight and fight he will against this Lootmar.
Delhi was first, Bihar next and it will follow.
Hope Modi reads what the tea leaves are telling him.
Modi Govt has been blessed in 3 ways.
Lower Fuel prices, lower metal prices and higher Tax collection.
Is it not sufficient - does he still have to squeeze the poor who pay Tax.

LALIT SHAH

2 years ago

Modi SARKAR is lootmar ki SARKAR

Ankur Bhatnagar

2 years ago

The citizens, with the help of learned tax/law experts, should demand an amendment in the Constitution to limit the taxes the government can impose on the population or should file a PIL.

The Constitution guarantees right to life (a good quality life) and many freedoms to the citizens that the government is not allowed to overrun. It gives several protections to the citizens against the government, even the right to sue the government.

However, it does not prevent the government to tax (direct+indirect) the individual up to any arbitrary limit. If a substantial part of an individual earnings is appropriated by the state, the quality of life of the individual is degraded and he ends up being a slave to the state. India's citizens are not meant to be slaves, even of an elected government.

BR

2 years ago

Even Welfare measures like Postal Life Insurance & Other insurance are taxed. Monthly Income Scheme of Post office gives low interest of 8% a year & no Bonus unlike 13% a year &Bonus of 10% on sum invested.Poor people cannot earn much.They pay Insurance companies &Postal life insurance or private companies which wind up helped by Company law boards to repay even half their dues and make depositors lose money.To work by giving service is made unattractive as Service tax is a disincentive.ALL PEOPLE CANNOT BECOME MINISTERS AND EARN MONEY.

manoharlalsharma

2 years ago

Citizens of INDIA r taken granted if State/Central Gov put any burden may be Paying more and more taxes indirectly or indirectly NO ONE QUESTION and EVEN some one QUESTION no nee to REPLY.

Nataraj Kailasam

2 years ago

Can someone tell me as to how levies like cess are resorted to in European countries or in the U.S.? For how long has the education cess been collected in our country? Should not such cess collection be a temporary measure to be absorbed when the actual budget is proposed next? What for are taxes in a budet levied then, if levies like cess have to be continuously paid by citizens? There should be some logic and reasonableness in tax collections. I think the Finance Minister has run out of ideas, and is resorting to indiscriminate levies to boost revenues. This goes against the cannons of Taxation propounded by Adam Smith, as such levies are hitting hard several sections of the population. It is time the Central government gave deep thought to raising finances in such manner and thinks of ways and means to reduce uncontrolled and wasteful spending, which , I am sure will make it possible to reduce the service tax levy to 10%. Is the FM listening?

REPLY

nginx

In Reply to Nataraj Kailasam 2 years ago

As many countries in the past have learned that excessive taxation never works out and can actually hamper the economy and development of the nation in the long run, India too shall learn the hard way that there is a limit to how much the common man can be burdened with taxes. Every year this burden keeps on increasing but corresponding benefits have not.

This is a slippery slope to say the least. The government must think of better ways to promulgate development. If atleast some effort is spent by the govt to minimize wastage of public money, most of the goals can be achieved with even half the amount collected as taxes every year.

Ankur Bhatnagar

2 years ago

The expectation from an effective government is that it would achieve significantly more in the same revenues for the country by eliminating wastage and stealing of public money, and by better implementation on the ground.

Instead, the directions seems just the opposite. The government is imposing ever more tax while there is no assurance, or as mentioned in this article, not even a plan for a better service.

S K Nataraj

2 years ago

These collectons by way of cess are meaningless. There should be control over govt. finances and wasteful expenditure should be totally curbed. A lot of money can be generated through curbs on wasteful expenditure and this alone should be sufficient to make up for the revenue that will be generated through additional levies such as cess. Every rupee saved is a rupee gained.

SKRISHNAN

2 years ago

50p additional levy for Swatch Bharath?! Let us talk of Swatch Delhi first -the CAPITAL, before we talk of Bharath!Can one believe that Safai Karmacharies are not paid their wages for months-why? -For want of money!Yet we dole out millions to some foreign country!Not that we object to it, but let us not forget that Charity begins at home!Don't the millions of Babus (and Netas for that matter most of whom also get a pay package of one sort or the other) not wait eagerly for the first of the month for their pay and get it promptly sometimes even on the last day of the month! How can any Government treat the poor safai karmacharies of the Capital city who are on the lowest wrung of the ladder so shabbily and yet talk of Swatch Bharath and make us pay for it by an additional cess. Let us first know how the taxes we pay are spent. One has only to see the Report of the CAG on how the money voted by the Parliament is (miss) spent to understand the extent of lack of accountability and transparency. It is time that the intelligentsia, the media and the opinion makers raise their voice to bring about a change for the better.

nginx

2 years ago

So sick of paying all these taxes. Tax on this, tax on that, tax on everything. Is there anything that comes without tax in India now? After paying 30.9% income tax, property tax, road tax, Value added tax, Octroi, Service tax, Sales tax (which indirectly increase cost of goods) etc etc., is there really anything left for the common man to live on?

If one takes all kinds of taxes into consideration, the total tax paid by an individual would be around 50-55% of his income. But what exactly do we get in return? In western countries people get Social Security and healthcare in return for the 30-40% tax they pay. In India, politicians loot our tax money and get involved in scams.

REPLY

S A Narayan

In Reply to nginx 2 years ago

I agree entirely. Taxability comparisons between countries must be done on the totality of taxes that one is exposed to both from incomes, expenditure and on retained capital assets.

Ramesh B Mhadlekar

In Reply to nginx 2 years ago

A stage will come that a common man will have nothing left in his purse for his survival.

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