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Swachh Bharat cess: When cleanliness comes at a price

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The 0.5% Swachh Bharat cess which is slated to bring in around 10,000 crores a year for the government might seem to be a small change, but its effects are far-reaching. Making a PAN card, travelling via train or even going to a restaurant will all cost more.

The yearly Budgets have become a licensed opportunity to fiddle with the tax laws and rates. It was in the Budget 2015-16 that Finance Minister Arun Jaitley proposed a 2% Swachh Bharat cess “on all or certain services, if the need arises”, but no date was set as such at the time. Since the initial cess proposed was 2%, the question remains as to would the remaining cess be levied later?

Many might support this move viewing it as a measure to uplift the filthy face of the country which has become a point of public shame. However, in a country where fund diversion is only too common, how can we, the common citizen taxpayers of the country, be sure that the money won’t go into Modi’s image-making campaign but truly in cleaning the nation? After all the Swachh Bharat campaign was an initiative towards a better political mileage for the Prime Minister and the BJP.

Within the remaining months of this fiscal the Swachh Bharat cess is supposed to yield around Rs 3,800 crore. But funds usually don’t reach where it’s most needed—the municipality and the panchayat levels in general.

A notification regarding the cess was issued by the CBEC on November 6 and it was effective from November 15, following which, all taxable services face a hike from 14% to 14.5% in service tax rates. Being Diwali week, many were on holiday during this period and most companies couldn’t make the necessary changes at such short notice.

The 2015-16 Budget held no benefits for the average salary earning citizens but promised to cut corporate taxes from 30% to 25% in four years. Modi has even promised foreign firms of tax exemption. Is it not the duty of the corporates to contribute to a cleaner country? Why is it that only individuals are burdened on this count?

Moreover, it was only on November 11 that many of the issues were clarified by CBEC through FAQs, such as—services with alternate tax rates will also have alternate cess rates, and that no Cenvat credit would be available on this Swachh Bharat Cess. Without this input credit, the effective rate of the tax is marginally more than the proposed 14.5% service tax on paper.

As per initial estimates, the Swachh Bharat project needs a funding of ₹62,009 crore. 23 per cent of this (₹14,623 crore) would be paid by the Government of India while the States would pay ₹4,874 crore (25 per cent of the government paid amount).

The remaining amount is expected to come from the Swachh Bharat Kosh, Private Sector Participation, State governments/ULB resources, innovative revenue streams, user charges, and other methods such as external assistance and CSR. User charges are usually only used for maintenance expenses, and borrowing money for a social cause is never a good idea. The government would do good to think of alternative methods, such as a deduction from every individual under the Income Tax Act.

A cleanliness drive has to start at the grassroots level and on a regular basis to address the country’s filth problem. A civic sense needs to be developed in each and every citizen for this project to turn into a reality. The cess described by the Finance Ministry as “not another tax, but a step towards involving each and every citizen in making a contribution to Swachh Bharat” is definitely not the way to achieve this end.

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GST’s outcome: 2017 registered as the most significant year for economy since Independence

The new indirect tax regime unifying the Indian market has four tax slabs of 5, 12, 18 and 28 per cent.

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Earlier this year, World Bank announced that India had jumped 30 places in its Ease of Doing Business rankings
Earlier this year, World Bank announced that India had jumped 30 places in its Ease of Doing Business rankings

New Delhi, Dec 25: The 70th year since Independence will go down in Indian history since the country switched over to the  (GST) regime, realising, thereby, the vision of a unified market in a federal system that guided the nationalist bourgeoisie in joining Mahatma Gandhi’s struggle to liberate India from the British.

Of course, the structural reform came accompanied by pain for trade and industry caught off-guard by the rigours of new compliance procedures. Queried by corporate leaders at industry chamber Ficci’s 90th AGM here earlier this month on how GST was impacting through lower tax collections, Finance Minister Arun Jaitley put the onus on them.

“It is you from industry, who have been calling for so long to bring GST… and no sooner do these initial problems in implementing a reform of such scale appear, then you want to go back to the system we’ve had for 70 years,” he said.

The earlier system was a myriad of central and state taxes where the movement of goods was slowed down by-products being taxed multiple times and at different rates.

State level taxes replaced by the pan-India GST include state cesses and surcharges, luxury tax, state VAT, purchase tax, central sales tax, taxes on advertisements, entertainment tax, various forms of entry tax, and taxes on lotteries and betting.

Central taxes replaced by GST are service tax, special additional customs duties (SAD), additional excise duties on goods of special importance, central excise, additional customs duties, excise on medicinal and toilet preparations, additional excise duties on textiles and textile products, and cesses and surcharges.

The new indirect tax regime unifying the Indian market has four tax slabs of 5, 12, 18 and 28 per cent.

It has a novel feature whereby goods and services providers get the benefit of input tax credit for the goods used, effectively making the real incidence of taxation lower than the headline taxation rate.

Indian economy has surged many folds after the introduction of new tax structure
Indian economy has surged many folds after the introduction of new tax structure

The second half of the year saw a radical reworking of the items within the four-slab tax structure by the supremely federal institution of the GST Council, whereby all but 50 of over 1,200 items remained in the highest 28 per cent bracket. Those retained included luxury and sin items, the cess on which goes to fund the compensation to states for the loss of revenue arising from implementing GST.

With the Council’s decisions last month, GST has been cut on a host of consumer items such as chocolates, chewing gum, shampoos, deodorants, shoe polish, detergents, nutrition drinks, marble and cosmetics. Luxury goods such as washing machines and air conditioners have been retained at 28 per cent.

Eating out has become cheaper as all restaurants outside high-end hotels charging over Rs 7,500 per room will uniformly levy GST of five per cent. The facility of input tax credit for restaurants has, however, been withdrawn as they had not passed on this benefit to consumers.

Petroleum, including oil and gas, is a strategic sector that is still not under GST, while the industry has been pushing for its inclusion so as not to be deprived of the benefits of input credit.

Including real estate is another matter pending before the GST Council.

On the functioning of the Council, Jaitley who is its head had this remarkable insight about the way in which it had effected such large-scale rationalisation of the item rates in a short span of “3-4 months”.

“Everything has been achieved by consensus in the best spirit of cooperative federalism. There has been no politics, even from states which are controlled by opposition parties,” he told a gathering of industry leaders here.

The other side of GST was revealed through what the International Monetary Fund described as “short-term disruptions”.

With businesses going into a “de-stocking” mode on inventories in anticipation of the GST rollout from July and sluggish manufacturing growth, among other factors, pulled down growth in the Indian economy during the first quarter of this fiscal to 5.7 per cent, clocking the lowest under the Narendra Modi dispensation. Breaking a five-quarter slump, a rise in manufacturing sector output, however, pushed the growth rate higher to 6.3 per cent during the second quarter (July-September) of 2017-18.

Besides, technical glitches appearing on the GST Network portal, often unable to take a load of the last-minute rush to file returns, marred the filing of returns by traders, forcing the government to postpone filing deadlines several times. The glitches also led to export refunds piling up, resulting in a grave situation of the cash crunch for exporters, whose working capital was getting blocked.

In the final analysis, the GST balance sheet is provided by Gita Gopinath, Professor of International Studies and Economies at Harvard University, who is also the economic adviser to the Kerala Chief Minister.

“GST is a real reform. It is a way of formalising the economy. It is a very effective way of ensuring tax compliance, making it harder to earn black money. I mean, nothing ever goes away completely, but it just makes it harder to make it happen,” Gopinath said in Mumbai earlier this month. 

The icing on the cake came with the World Bank announcing earlier this year that India had jumped 30 places in its Ease of Doing Business rankings to get among the top 100 countries on the list. Though reforms in India’s direct tax regime figured among the parameters considered in the evaluation, GST had not been taken into account by the multilateral agency since their cut-off date was June 30. IANS