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.