Doing a disservice?

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Service tax is set to rise to 15 per cent from this June, thanks to the Krishi Kalyan Cess (KKC) of 0.5 per cent introduced in this Budget. Harshavardhan gets the reaction of a cross-section of people to this increase

‘Govt must find ways to exempt senior citizens’

Senior citizen S Pranatharthy Haran is a retired officer of the Department of Posts. He is worried that service tax will push up his monthly phone and satellite TV bills and make travel by rented cabs as well as trips to eye-care/dental establishments costlier.

“We senior citizens have sharply lower fixed income after retirement,” he points out. “We have to depend on pension and the none-too-attractive bank interest, which also has declined in real terms over the years.” Regular hikes in service tax have a larger impact on the monthly expenses of such people. This tends to erode their savings as they use them to meet their expenses. Service tax is inequitable as it hurts all citizens uniformly, irrespective of their earnings.

Pranatharthy thinks the Centre should find some means to exempt senior citizens from this tax. “I think the time has come for a serious re-think on the spiralling incidence of service tax on the incomes of the consumers of India who have to contend with significant retail inflation in goods and services which is not optimally captured in the inflation index,” says Pranatharthy, driving home his point. “I do not expect the government to roll back the tax increases but innovative solutions need to be devised to cushion the impact on vulnerable sections.”

‘Transport costs go up, so will grocery bills’

Vani is a homemaker by choice and mother of two young boys. She says her monthly expenditure will be impacted by increased internet, mobile charges as well as higher satellite TV subscription fee, not to mention spikes in cost of outdoor dining and travelling for the family as service providers pass on the service tax hike. “I think my grocery bill will go up as transportation services will get costlier. Traders hit by the hike in transport charges, owing to the tax increase, will pass on the cost. Transport cost is a price multiplier and even a small increase in charges in the transport sector gets magnified in retail prices,” she explains.

Vani also fears that along with increases in petrol and diesel prices in the future, the service tax hike is going to further increase the costs incurred by her family.

‘Allow standard deduction for women’

It is in the area of everyday services that the salaried will feel the pinch. Hema James, an employee with the CII, says, “My work involves frequent travelling, increased use of cellular phone and internet services and eating out, which will now dent my wallet due to service tax hikes.”

She is of the view that more the services consumed, more the drain on account of service tax.

“In these hard times, I want the government to allow the return of standard deduction in income tax to somewhat offset the outgo on account of service tax,” says Hema. She is of the opinion that the standard deduction compensated, even if very inadequately, the basic expenditure necessary to earn an income. “I feel that the continued absence of standard deduction, coupled with the repeat hikes in service tax, is a double whammy for salaried employees,” she rues.

‘Concept of multiple cesses goes against spirit of GST’

KP Gopal, Director, Scuser Tools, questions the need for yet another cess. He thinks that these additional cesses are only complicating the tax structure further.

“While the quantum of cess will not have any major effect on the overall economy/inflation, the concept of having multiple cesses on a tax could have been avoided,” he says. “We already have a Swachh Bharat Cess and we now have Krishi Kalyan Cess. The very concept of multiple cesses goes against the spirit of the GST, which is to try to subsume all taxes under one head. Also, the question does arise as to what would happen to these cesses once the GST is operational in a few months’ time. So, introducing a cess which may be replaced by the GST is avoidable.”

Gopal believes that the service tax will increase further under the GST. He thinks that in the case of goods, the increase may not be much, since the GST will subsume both central taxes like CENVAT and state taxes like VAT, and octroi, among others. But in the case of services there are no state taxes. “Hence, the common rate for both goods and services is likely to have a larger impact on services,” he cautions.

‘Middle class bears the brunt of tax increases’

N Sivaramakrishnan, a media student from a well-known university, is concerned that his visits to restaurants, spas and gymnasiums will now cost more. He says, “The younger generation does not like to stop with campus education but avail themselves of specialised programmes, such as fashion design, specialised computer courses, etc. These will now cost more.” While college and school fees are exempt from service tax, fees for courses that do not lead to any formal degree, such as coaching classes, are taxed. He thinks that these hikes have the maximum impact on the middle class. “Tax increases may not be a concern to the upper class and ironically to the lower class as they may not avail of all these services. But the middle class people are impacted the most and it upsets their budget,” he says ruefully.

Sivaramakrishnan argues that these increases might be counter-productive as they could reduce the demand for these services and the tax departments could finally collect less tax.

Source: http://www.thehindubusinessline.com/portfolio/people/doing-a-disservice/article8377751.ece

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