Many of the services offered by the Railways, including advertising and construction-related services, may soon come under the tax net with the finance ministry deciding to be firm in its view that the national transporter can’t claim an exemption for being a public utility. North Block has already told the railway authorities to pay tax on the taxable services rendered by them.
The move is aimed at expanding the service tax net which would be of some help to the government to tide over any shortfall in tax collections this year from the slowing down of the economy.
Railways has refrained from paying tax on services citing that it offers a national service and any additional tax on its activities would severely impact its business and reduce ability to provide cheap and reliable transport to millions of citizens.
?The revenue department has asked the Railways to pay taxes on various services. Several commissionariates of the Central Board of Excise and Customs have issued show cause notices to the concerned railway authorities to pay taxes and even the senior zonal officers have been summoned,? a finance ministry official said.
Currently, 119 services are under the tax net and railways render many of these services but pays no tax. Revenue department feels that this is unjustified and the Railways should consider itself like any other commercial organisation and pay taxes. It is expected that tax on railway services (excluding freight services) would help the department garner over R500 crore annually and the numbers could go even higher with proper assessment.
Service tax payment has already become a flashpoint between the Railways and the finance ministry. Recently, the revenue department has deferred the service tax levy on transport of goods by rail for the fifth time to January 2012, under pressure from the Railways and on account of high inflation. The finance ministry may have to postpone it again to next fiscal, a move that would bring loss of R1,000 crore to the revenue department.
Under pressure from Mamata Banerjee, the government had deferred a decision on levying the service tax by three months to July 1 in the beginning of the current fiscal. In Budget 2009-10, the government had proposed 10% service tax on goods carried by the Railways to provide a level playing field to transport of goods by roads. It, however, exempted rail freight from service tax in September 2009.
‘This (non-payment of service tax by railways) cannot go on forever. If tax on freight is sensitive considering its inflationary impact, railways should at least allow its other services to be taxed,? said an official in the Planning Commission, asking not to be named.
In fact, the Commission has been pushing for more economic pricing of railway freight and passenger tariff to improve its financial health and ability to pay taxes. The latest move by the Central Board of excise and Customs (CBEC), the nodal body for indirect taxes in the country, has come after several letters were exchanged between the railways and the finance ministry failed to yield results. The department now wants the Railways to comply with the law and the data collected from the field officers have been used to assess the total tax demand outstanding against it, said another government official.
This revenue department is also concerned as they are anticipating economic slowdown in the later half of the current financial year which could slow down tax collections.
The government has an indirect tax collection target of R3.92 lakh crore this year, which is around 15% more than what was planned in the previous fiscal. Out of R3.92 lakh crore, the finance ministry expects to mop up R82,000 crore from service tax.
