Taxed India Inc asks Modi government to delay Swachh Bharat cess

NEW DELHI: Indian industry hasn’t taken too kindly to the recent imposition of a cess to help fund the Swachh Bharat initiative, with lobby groups saying that companies haven’t been given enough time to implement the levy and that it goes against the government’s push to improve ease of doing business. The 0.5 per cent cess on all taxable services was notified by the Centre on November 6 and will take effect on November 15.

The government had said in the Budget in February that it may impose a cess of up to 2 per cent to fund the ambitious cleanup initiative if needed. PM Narendra Modi launched the Swachh Bharat programme on October 2 last year. The finance ministry issued a statement late Thursday to clear the air about various issues related to the levy while effectively ruling out any deferment of the cess.
“It may be seen that all issues relating to Swachh Bharat cess are addressed in the service tax provisions itself by virtue of the applicability of Chapter V of the Finance Act, 1994, and the rules made thereunder,” said the finance ministry statement on Thursday.

The clarification follows a letter to Revenue Secretary Hasmukh Adhia from the Federation of Indian Chambers of Commerce & Industry (Ficci) that said eight day’s notice was too short and that the cess should be implemented only in January.

Imposing the levy in such a manner “totally goes against the concept of ease of doing business which the government has of late been trying to propagate”, Ficci said in its representation, according to persons familiar to the development.

‘IMPLEMENTATION CHALLENGING’

The Confederation of Indian Industry (CII) said the timing makes implementation challenging, particularly as it’s festival season and changing billing systems in the middle of the month would be difficult. The grouping also sought clarification on whether the levy would be creditable, referring to reimbursements on items used as inputs used in manufacturing. Not allowing this would add to the challenges that industry is facing in an uncertain economic climate.

Industry also said the cess wasn’t in line with the government’s plan to roll out the goods & services tax ( GST) on April 1, given that this is meant to subsume all surcharges and cesses.

The Cellular Operators Association of India, the GSM lobby group, raised this point while flagging practical difficulties in complying with the instruction. Telecom operators need time to change billing systems and reprint prepaid cards, the association said, asking for a deferment.

Some tax experts said the cess would not only increase the effective tax rate but also result in a cascading effect in case cenvat (central value added tax) credit is not allowed. “There is no clarity whether credit of Swachh Bharat would be available as in the case of service tax,” said Bipin Sapra, partner, EY. “In case the credit is not available, the net incidence of the cess would be higher than 0.5% on services on account of cascading. Similarly, the cess would also impact the price of goods as there would be an incidence of cess on input services.”

‘NO CLARITY ON VALUE AND RATE’

Further, the notification on the Swachh Bharat cess doesn’t clearly set out the value and rate at which it would be levied in sectors such as air travel, where presumptive taxation is followed.

For example, in the case of air travel agents, service tax is calculated at the rate of 0.7% or 1.4% of the value of basic fare of domestic and international tickets, respectively. Air travel agents opting for presumptive taxation depositing service tax at 0.7% of the basic fare for domestic travel and 1.4% of the basic fare for international travel will have to separately pay the cess calculated at 0.5% of the commission.

It is also not clear what the effective rate of tax would be for services that are taxable at an abated rate. The industry bodies have also pointed that since the cess appears to be a new levy, the point of taxation should be clearly determined. In its statement late Thursday, the finance ministry clarified the taxable value for the levy of Swachh Bharat cess would be the same on which service tax is levied. The cess would be calculated on abated value or value arrived at under service tax. On the issue of point of taxation, the statement said norms laid down in Rule 5 would apply.

“Therefore, in case where payment has been received and invoice is raised before the service becomes taxable, i.e., prior to November 15, 2015, there is no liability of Swachh Bharat cess”, it said, adding that in case payment has been received before the service became taxable and invoice is raised within 14 days, that is up to November 29, 2015, even then the service tax liability does not arise.

“Swachh Bharat cess will be payable on services which are provided on or after November 15, 2015, invoice in respect of which is issued on or after that date and payment is also received on or after that date. Swachh Bharat cess will also be payable where service is provided on or after November 15, 2015, but payment is received prior to that date and invoice in respect of such service is not issued by November 29, 2015,” it said.