The imposition of service tax on railway services from Monday, already reported, would coincide with a 12 per cent busy season charge. This will be in addition to the 20 per cent increase in freight rates on March 14.
The busy season charge has been raised from the 10 per cent applicable earlier. “The service tax collection will go to the government but collection from the busy season charge will go into the railway kitty. We won’t absorb any burden on account of service tax but pass it on to the consumer,” said a railway official who did not want to be named.
The railways has imposed a 12 per cent service charge for transport of all commodities except foodgrain, chemical manure and petroleum products.
The tax will being Rs 1,500 crore to the exchequer in the next six months.
M Rafeeque Ahmed, president, Federation of Indian Export Organisations, said, “It will add to the cost of doing business at a time when global market demand has shrunk sharply and consumers have become price-sensitive. It will also impact the lean margins of the micro, small and medium enterprises’ export sector, given the domestic compulsions of high interest rates/production costs.”
The busy season charge will be levied from October 1 to June 30. For the remaining three months that are the lean ones, the charge is discontinued.
The charge is levied on the base freight rate. Under the railways’ dynamic pricing policy, the base freight rate, with various demand management charges and the busy season charge constitute the Net Tariff Rate (NTR).
More From This Section
The development surcharge on the NTR is unchanged at five per cent.The busy season charge will be levied on all commodities except containerised cargo and certain automobile traffic.
The service tax imposed on freight is 12.36 per cent but after the adjustment of 70 per cent of this, it will effectively be 3.708 per cent, on these and on passenger fares in AC classes.
Auxiliary services rendered at stations like catering and parking will have to bear the burden of a 12.36 per cent rise, as there will be no adjustment on these services.
On the imposition of the service tax on the railways, Amrit Pandurangi, senior director at Deloitte, said: “With this, the government has sent a very clear message that it will try to take most services under the tax ambit, as India is predominantly a service economy.”
The decision comes within days of the Trinamool Congress exiting from the UPA government. The TMC, which had the railway portfolio for years, had objected to service tax on these services.