The monsoon rains are yet to descend upon the land. The last eyewitness was perhaps the 2015. The rain gods unrelenting, the government has gone pro-active and taken matters in their own hands. The Modi government recently introduced the Krishi Kalyan cess, levied at 0.5% to the existing 14.5% service tax, which resulted into furore in the markets and amongst public. While most of the public resented this decision, increasing burden on the already taxpaying bourgeois society; it should be seen as a promising move. As also, this is not the first time that we have been introduced to these so called cesses!
The Krishi Kalyan cess is levied with the intention of generating additional Centre income reserves. The proceeds will be used for financing initiatives relating to improvement of agriculture and welfare of farmers. Many of you would be wondering, why the government needs this additional cess when it is already collecting 14.5%!! This would be a right juncture to introduce the rationale behind charging service tax to the public. In any welfare state, it is the responsibility of the government to fulfil the development of the country and public, by way of public expenditure. India, being a developing nation with limited resources, the government’s revenue is confined to direct and indirect taxes, along with customs and excise duty. It is also well understood that services contribute a higher proportion of the consumption of the rich than the poor, demand for services being income-elastic. Service tax is one of the avenues to address the shortfall in government revenues, and is charged according to the taxation policy of the country. Service tax was first introduced in the 1994-95 budget speech by Dr Manmohan Singh. Over the years, it has now reached a level that June 2016 onwards, the effective service tax will be 15%.
The government has projected to collect an aggregate of Rs 5,000 crore through this tax for the financial year 2016-17. The proceeds of the Krishi Kalyan Cess shall first be credited to the Consolidated Fund of India and the Central Government may, after due appropriation made by Parliament by law in this behalf, utilise such sums of money of the Krishi Kalyan cess for agro development initiatives. India, being an agrarian nation relies on the farmers. Recent droughts, suicides, debts have led to miserable living conditions for the farmers (Read more). And it is farmers that drive the nation. The revenue from this cess will therefore empower the Centre towards upliftment of farmers, to formulate financial initiatives in addition to the already introduced ones.
If we look back, tax on services is not new as we have been paying taxes on services in past also, in the form of luxury tax, entertainment tax, expenditure tax, amusement tax, gambling tax, commercial tax, interest tax etc. Although we might feel the pinch of the cess, but in the broader picture, it helps India to move towards a developed state. Also during this year, the finance minister abolished 13 cesses levied by various ministries, in which revenue collection is less than Rs 50 crore in a year. These coherent actions by our Finance Minister should be viewed positively. However, some cess also has been under-utilized, which may exhibit their full potential in the coming future.
If you remember, back in 2014 budget session, the Goods and Services Tax (GST) was introduced and it recently passed the Lok Sabha on 6th May 2015. The GST replaces all the indirect taxes with a singular tax slab. It is being hailed as a game changer, in the sense, that it will remove the multiplicity and cascading of taxes. With the recent addition of cess, the rate is slowly being increased to bring service tax closer to the expected goods and services tax (GST) rate of 17-18%. The GST will have to cut through many complexities in the federal political structure like India. It projects to simplify business. What is not clear is when and how will this be rolled out, which could be worked out by the GST council and GST bill after the constitutional amendment. But thanks to the ongoing fracas in the Upper house of the parliament, where the ruling party has limited number against an unrelenting opposition, the GST is stuck in a limbo. Certain aspects of GST are that it will subsume Central indirect taxes; petroleum products, alcohol for human consumption and tobacco are exempted; the final customer shall only bear the GST and it will have two components Central GST and State GST, levied by Centre and states respectively. (Read more)
Will cesses ever cease? Well, if you live in a country like India, where there are so few taxpayers, don’t bet on it. The way I see it, by imposing cess, we are being consciously involved in the development of our own nation – ‘An act of service to the nation, rather than a burden’.
What are your thoughts? Let us know in the comments below.