The Centre has bowed before the Trinamool Congress (TMC) again. The finance ministry, with Prime Minister Manmohan Singh at its helm, on Monday decided to exempt the railways from service tax on AC-class passenger fares and freight charges for three months, till September 30.
Railway Minister Mukul Roy had made it clear on Friday the railways would not implement the new service tax regime from July 1 and had written to the PM to that effect. This is the eighth time (since 2009 when TMC chief Mamata Banerjee was the railway minister) that the Centre has conceded to the demand to exempt the railways from paying service tax.
The TMC has made it clear it would have no part in any move that would result in raising passenger fares. Twelve per cent service tax on passenger fares in all AC classes and first class would result in fares increasing by 3.6 per cent, as the tax would be levied on 30 per cent of the charges after a 70 per cent abatement. If the railways decide not to pass on the service tax cost, it would have to bear a burden of around Rs 3,500 crore, unviable in its present financial condition.
| VETO POWER Trinamool Congress’ record of stonewalling the UPA govt’s moves |
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Roy asked the PM for the exemption on Friday. He was on record to state, “The railways are not a profit-making body and never before has service tax been levied on the railways.”
In a notification issued on Monday, the finance ministry said the three-month exemption was provided “on being satisfied that it is necessary in the public interest to do”.
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This is the eight deferment on service tax on rail freight, which was first announced in Budget 2009-10. Service tax on transportation of passengers in first class or air-conditioned coaches was announced as part of the Negative List approach that came into effect from July 1.
The exemption was announced within hours of the Negative List being made public. Such appears to be the TMC’s hold over the UPA government. Usually, exemptions are announced before a tax is made public.
The government loses around Rs 3,200 crore annually due to the exemption on transportation of rail freight. The loss due to deferment of the tax on transportation of passengers would not be much as the government would not be required to pay input tax credit to the railways, a finance ministry official said.
The deferment came less than two weeks after the then finance minister Pranab Mukherjee released a guidance paper on ‘Taxation of Service’.
Asked about the rationale behind the timing of the notification, the official said, “The railways need more time to adjust to the new system.”
Sources say the TMC rationale is clear. The hike would put an additional burden on passengers in the AC-I and AC-II classes, fares in which had already been increased by about 20 per cent in the Railway Budget. After the Railway Budget, while the ordinary passenger-class fare hike had been rolled back, the AC fare hike remained.
A TMC leader explained, “The additional revenue that will accrue if the service tax is implemented will not benefit the railways; but the perception would be the railways raised fares. We cannot afford to do that.”
The TMC has on several occasions stonewalled the UPA on crucial policy decisions, including FDI in multi-brand retail, insurance and pension reform, FDI in aviation, etc. The government has even suffered the humiliation of being labelled a “lame duck” government on account of that.
The ally’s latest troublesome act was its refusal to extend support to the UPA coalition’s Presidential nominee Pranab Mukherjee.