While the government stands to gain around Rs 1,000 crore from service tax on transportation of goods by railways, freight movement on the rail network may become unattractive in case of the tax being passed on to transporters. In the event of the tax being absorbed by the national transporter, allocations reserved for development purposes would decline by a third in the coming financial year.
In the Finance Bill 2010, a service tax of 10 per cent has been levied on ‘service provided in relation to transport of goods by rail’ with effect from April 1.
A provision, however, has been made for abatement of 70 per cent of the gross value of freight charged on goods (other than exempted goods) while levying the tax.
Taking into account freight earnings of Rs 62,489 crore as projected in the Railway Budget 2010-11, sources say, the service tax payable to the Centre by the railways works out to be Rs 1,000 crore. The imposition of the service tax would have a direct impact on reducing by nearly 30 per cent the excess earning of Rs 3,173 crore projected to be registered by therailways in the coming financial year.
An official associated with the railway ministry said: “The reduction in excess earnings available with the railways would mean lesser appropriation to the Development Fund and Capital Fund. The railways are an arm of the government, and the service tax is not levied on any other ministry. So, there is no reason why the railways should be singled out for such an imposition.”
He added the levy not only means lesser allocation for developmental works in the railways, it alternatively makes a case for the organisation to increase freight rates.
“Considering that Indian Railways are facing a resource crunch, an option available with the ministry is to pass on the tax to freight transporters. The measure can and will then result in inflationary trends.”
The headline inflation stood at a 14 month-high at 8.56 per cent for the month ended January 2010.
The railways are already burdened with the Rs 100 per wagon concession for transportation of foodgrains and kerosene announced by Mamata Banerjee in the Railway Budget.
Initial estimates worked out by the ministry indicate this measure alone would cause the transporter revenue loss of approximately Rs 2 crore on a monthly basis.
The Ministry of Finance has waived service tax from transportation of defence equipment, railway equipment, postal mail bags, luggage of train passengers, relief materials, foodgrains, petroleum products and specified essential commodities via rail.