FM proposed a Krishi Kalyan Cess on all taxable services, which will drive up the effective service tax rate to 15%
From eating out to watching movies and buying cars, a host of activities and items are set to get dearer, as the government has decided to introduce an agriculture cess on all taxable services and another on cars in an effort to rake in some Rs 8,000 crore in the next fiscal.
Not just this, finance minister Arun Jaitley on Monday also doubled another cess on coal, lignite and peat to Rs 400 per tonne, stoking fears of a hike in power tariff and adding to pressure in user industries. Analysts said the government is expecting over R54,450 crore from five major cesses—including the Swachh Bharat cess and oil development cess—in the next fiscal, compared with the revised estimate of Rs 31,335 crore in 2015-16.
Jaitley proposed a 0.5% Krishi Kalyan Cess on all taxable services, which will drive up the effective service tax rate to 15%. The government aims to rake in some R5,000 crore from the cess, which will come into effect from June 1. The proceeds will be exclusively used for financing initiatives relating to agriculture and farmers’ welfare, Jaitley added. Input tax credit of this cess will be available for the payment of this cess.
He also announced an infrastructure cess of 1% on small (petrol, LPG and CNG) cars, 2.5% on diesel cars of certain capacity and 4% on vehicles with higher-engine capacity as well as SUVs. However, he exempted certain other vehicles, including three-wheeled and electrically-operated vehicles.
The finance minister renamed the ‘Clean Energy Cess’ levied on coal, lignite and peat as ‘Clean Environment Cess’.
The government also aims to net R26,148 crore in 2016-17 from this cess, against R12,623 crore in 2015-16.
However, analysts feel the cess will likely drive up the coal-based power tariff by 10-12 paise per unit for consumers.
Three-fourths of India’s total power generation is based on coal and nearly 75% of coal produced in the country is consumed by the power sector.