Is Levying Krishi Kalyan Cess A Bad Idea?
Jun 01, 2016

All taxable services will attract additional 0.50% cess under Krishi Kalyan Cess from June 01, 2016. As a result, the effective service tax rate will now become 15%. The Government has clarified that it will utilise all the revenues collected on account of the Krishi Kalyan Cess for strengthening the agrarian economy and improving the financial state of poor farmers. The Government expects to raise Rs 5,000 by imposing Krishi Kalyan Cess. Besides, 47 specific services, all other in the negative list will not attract the Krishi Kalyan Cess.

So a whole host of services will become dearer now. Your phone bills will go up. Eating out will become expensive and taxable banking services will also cost you more, among other things. Of course, there are pros and cons of every new rule that comes into effect and in this case too, there are positive as well as negative reactions to the levying of Krishi Kalyan Cess. PersonalFN attempts to clear the air.

The Krishi Kalyan Cess...

The Indian farmer has been fighting natural and man-made adversities for decades. On the one hand, there are erratic climatic conditions, and two back to back deficient monsoons have made it difficult for him to survive. On the contrary, limited investments made so far in the modernisation of the agriculture sector have been hampering the productivity of the cultivable land. The result is farmers are ending their lives. Maharashtra alone has recorded 3,228 suicides in 2015, the highest number in last 14 years. Farmers in other parts of the country also show distress. Unless the condition improves, it will be tough to anchor the food inflation. 70% population of this country still depends on agricultural and allied activities.

So naturally, it would seem insensitive, inhuman, and irrational to object to this tax. .

Where’s the lacuna?

The problem is, for every cause the Government keeps collecting additional tax in some new name. Increasing the rates of indirect taxes is always considered a regressive move as it affects even the poorest person along with the richest. So how can the Government justify the Krishi Kalyan Cess even if the cause is genuine?

The constraints on increasing direct taxes and the politic games played around, exempting even the wealthy farmers from the purview of income tax, leaves the Government with only an option—charge a higher tax on services. Many politicians are farmers on paper, so all of them oppose the idea of charging agricultural incomes no matter how high they might be. Some experts believe the newer cess will create higher services inflation.

How may the Government justify it?

Once the GST becomes applicable, the rate of service tax is expected to touch 17%-18%. The current hike is considered to be a step towards implementing these increases in a phased manner. The tax department will offer credit facility to the service providers on the cess paid on input services.

Would you mind it?

A common man, unlike politicians, is not insensitive to the fragile state of the farmer. What he may expect is that the money should be utilised for the same cause it is being raised. A person eating out may not mind paying Rs 5 extra on every Rs 1,000 of the bill. However, then, he has every right to expect the retail inflation and the food inflation to fall, and the condition of farmers improves indeed.

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Jun 02, 2016

It is good to see tax collection done for specific purpose.
Hope they are short term and as pointed out by you spent on the intended cause or need. At some time point the no of cess items and total tax as a percentage should come down. Yes, it would have been very right if the rich from the agriculture were made to participate in this cause through direct taxes.

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