Budget 2016 has proposed to impose two new cess namely Krishi Kalyan Cess (KKC) and Infrastructure Cess that gives additional burden to taxpayers (including individuals). Further, it has also proposed to raise the incidence of Clean Energy Cess (now been renamed as Clean Environment Cess) applicable primarily on coal, lignite and peat from the current Rs 200 a tonne to Rs 400 a tonne.
To finance and promote initiatives to improve agriculture, Clause 158 of the Bill seeks to insert new Chapter-VI so as to levy a cess known as Krishi Kalyan Cess (at 0.5 per cent) with effect from June 1, 2016 in addition to any cess or service tax. The KKC shall be levied as service tax on all or any of the taxable services under Chapter V of the Finance Act, 1994, or under any other law for the time being in force.
The levy of KKC on all taxable services will increase the service tax rate by 0.5 per cent viz., from 14.5 per cent (including Swachh Bharat Cess) to 15 per cent for all taxpayers. Also, Budget 2016 proposed that credit of KKC paid on input services shall be allowed to be utilised only against KKC on output services.
* In case of an individual, the additional Service tax burden would be Rs 25.
In addition to KKC, the Budget 2016 proposes to levy infrastructure cess at 1 per cent on small petrol, LPG, CNG cars, 2.5 per cent on diesel cars not exceeding 4m in length and engine capacity of up to 1500 cc. Further, cess at 4 per cent shall be levied on all other higher engine capacity vehicles viz., SUVs and bigger sedans. This budget measure is mainly to set to impact the price of cars and cesswill be primarily used for funding pollution reduction and improve the traffic situation in the Indian cities.
Upon implementation of Infrastructure Cess, the increase in prices could range from Rs 2,500 on entry level small cars and can go over Rs 1 lakh on high-end vehicles which are priced above Rs 30 lakh.
If we look at the scenario of increase in service tax, one would observe that the Finance Minister had in the past raised service tax from 12.36 per cent to 14 per cent w.e.f. June 1, 2015 and subsequently by imposing Swachh Bharat Cess at 0.5 per cent raised it to 14.5 per cent w.e.f. November 15, 2015. And now with KKC being proposed at the rate of 0.5 per cent, the service tax rate now would stand at 15 per cent. It is evident that the service tax rate is being gradually increased to bring it closer to the expected goods and services tax (GST) rate of 18 per cent.
The author is managing director – Protiviti India (Tax and Regulatory Affairs)