Eating out, travel to cost more from Wednesday

Come Wednesday, you will have to pay more for making calls, eating out, air or rail travel, buying and renewing insurance, watching films at cinema halls and TV through DTH, among many others services.

The 0.5 per cent Krishi Kalyan Cess announced in the Union Budget on “all taxable services” comes into effect June 1.

Last year, the Modi government had imposed a 0.5 per cent Swachchh Bharat cess on service tax to fund the Prime Minister’s pet project, the Swachchh Bharat Abhiyan.

In a little over a year, the Modi government has increased service tax from 12.36 per cent to 15 per cent (including the two cesses).

Only last month, the parliamentary standing committee on finance had expressed its displeasure over the fact that money collected by way of cess was not being utilised for the designated purpose.

The Krishi Kalyan Cess will make a host of services costlier, like visits to beauty salons, spas, gyms, courier services, credit and debit card-related services, chartered accounts, architects, insurance and demands raised by real estate builders for housing projects, among others.

The Modi government has been using the cess route to generate more revenue. Significantly, the Modi government has been claiming credit for accepting the recommendations of the 14th Finance Commission to increase states’ share in Central taxes by 10 per cent to a record 42 per cent.

Despite this, the Centre does not share the revenue earned through cess with states.

The government has said that proceeds from the Krishi Kalyan Cess will be exclusively used for financing initiatives relating to the improvement of agriculture and the welfare of farmers.

The parliamentary standing committee’s report had pointed out that cess collected under the research and development cess fund from 1996-97 to 2014-15 was Rs 5,783 crore, out of which only Rs 549.16 crore (9.6 per cent) was disbursed as grants-in-aid to the technology development board during the same period.

“Similarly, cesses collected under primary education cess and Central road fund cess during 2010-11 to 2014-15 have reported a shortfall in transfer/utilisation to the tune of `13,298 crore and `1,219 crore, respectively; cess proceeds were collected during 2006-15 under the secondary and higher education cess to the tune of `64,228 crore, but neither a fund was designated to deposit the cess proceeds nor schemes identified on which the cess proceeds were to be spent,” the report said.

It said that there were other funds as well where cess proceeds have been lying unutilised with a detrimental impact on national finances.

“The rationale of a cess is that the money it generates can only be used for the designated purpose, which makes it an effective policy tool in theory. However, if the money is not spent for the designated purpose or is diverted, it simply stagnates and distorts the economy further, as the additional tax brings down real incomes without any accompanying gain in socio-economic indicators as targeted,” the report said.