Finance Minister Again Succumbs To Cess Politics

It is one of the small chapters in the finance bill of 2016 but its impact will be huge. Even though Finance Minister Arun Jaitley announced during his general budget on Monday (29, Feb) that the Government has done away with 13 different cesses levied by various ministries with collections less than Rs.50 crore a year, Jaitley brought in two fresh new cesses. Cess indicates lazy government, which lacks innovative ideas to finance its schemes.

The budget of 2016-17 has proposed Krishi Kalyan Cess and Infrastructure Cess. One can call the Krishi Kalyan Cess as backdoor increase of service tax as it will be levied on all taxable services. Currently, the service tax stands at 14.5 percent comprising of 14 percent service tax and 0.5 percent Swachh Bharat Cess. Including the Krishi Kalyan Cess, the service tax from June will be 15 percent.

The Krishi Kalyan Cess, at 0.5 percent will be levied on all taxable services effective June 1, 2016. The proceeds of the cess will be exclusively used for financing initiatives for improvement in agriculture and upliftment of farmers. Input tax credit of the cess will be available for payment of this cess.

The finance minister also announced imposition of infrastructure cess of up to four percent on passenger vehicles such as cars, SUVs and luxury cars. Small cars would attract a cess of one percent while a cess of 2.5 percent is proposed on diesel vehicles.

The budget also increased Clean Energy Cess from Rs 200/ton to 400/ton on coal, lignite and peat.One is not enthusiastic about the cess imposition is because of the record of the government. The recent example is the manner in which the fuel cess has been put to use.

The government started collecting fuel cess on petrol and diesel from 2000 to build national highways. The Rs 2 per litre cess on petrol and diesel contributes about Rs 8,000 crore a year for building a modern road network including construction and maintenance of state highways by state governments, development of rural roads by state governments, construction of rail over-bridges by Indian Railways and construction and maintenance of national highways by the central government.

However, the pace of road construction has been very dismal. It has picked up speed after Road Development Minister Nitin Gadkari took it as a challenge. His efforts to revive and increase road building came to be acknowledged by Jaitley in his budget speech and also saw allocation being increased.

Key features of general budget:

Extract from the finance bill 2016:

CHAPTER VI

Krishi Kalyan Cess

This Chapter shall come into force on the 1st day of June, 2016. (2) There shall be levied and collected in accordance with the provisions of this Chapter, a cess to be called the Krishi Kalyan Cess, as service tax on all or any of the taxable services at the rate of 0.5 per cent. on the value of such services for the purposes of financing and promoting initiatives to 5 10 15 20 25 30 35 40 45 Special provision for exemption in certain cases relating to construction of Government buildings. 32 of 1994. Special provision for exemption in certain cases relating to construction of airport or port. Amendment of notification issued under section 93A of Finance Act, 1994. 32 of 1994. Krishi Kalyan Cess. 50 52 improve agriculture or for any other purpose relating thereto. (3) The Krishi Kalyan Cess leviable under sub-section (2) shall be in addition to any cess or service tax leviable on such taxable services under Chapter V of the Finance Act, 1994, or under any other law for the time being in force. (4) The proceeds of the Krishi Kalyan Cess levied under sub-section (2) 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 such purposes specified in sub-section (2), as it may consider necessary. (5) The provisions of Chapter V of the Finance Act, 1994 and the rules made thereunder, including those relating to refunds and exemptions from tax, interest and imposition of penalty shall, as far as may be, apply in relation to the levy and collection of the Krishi Kalyan Cess on taxable services, as they apply in relation to the levy and collection of tax on such taxable services under the said Chapter or the rules made thereunder, as the case may be.

CHAPTER VII

Infrastructure Cess

(1) In the case of goods specified in the Eleventh Schedule, being goods manufactured or produced, there shall be levied and collected for the purposes of the Union, a duty of excise, to be called the Infrastructure Cess, at the rates specified in the said Schedule for the purposes of financing infrastructure projects. (2) The cess leviable under sub-section (1), chargeable on the goods specified in the Eleventh Schedule shall be in addition to any other duties of excise chargeable on such goods under the Central Excise Act, 1944 or any other law for the time being in force. (3) The provisions of the Central Excise Act, 1944 and the rules made thereunder, including those relating to assessment, non-levy, short-levy, refunds, interest, appeals, offences and penalties, shall, as far as may be, apply in relation to the levy and collection of the cess leviable under sub-section (1) in respect of the goods specified in the Eleventh Schedule as they apply in relation to the levy and collection of the duties of excise on such goods under the said Act or the rules, as the case may be. (4) The cess leviable under sub-section (1) shall be for the purposes of the Union and the proceeds thereof shall not be distributed among the States.