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An increase in service tax by 0.5 per cent, with the addition of the latest Krishi Kalyan Cess, has taken the industry by surprise. The industry has termed it “regressive” as it adds to the web of existing taxes, heralding new issues of compliance.
The Budget proposed the Krishi Kalyan Cess on all taxable services from June 1 and its proceeds are to be ploughed back into agriculture and the welfare of farmers. The new levy would result in increasing the overall tax outgo of the services sector by 15 per cent. “The proposal to introduce another cess on all taxable services seems regressive, especially since we are on the threshold of Goods and Service Tax. This would not only make the services more expensive to the aam admi but would also be another compliance pain for the service industry,” said Abhishek Jain, Tax Partner at EY.
At present, a 14.5 per cent tax is levied on all services, including a 14 per cent service tax and 0.5 per cent Swachh Bharat Cess. “This has surprised the sector. Even though this is creditable (unlike the Swachh Bharat Cess), this adds to the confusion,” said Vijay Agrawal, Executive Director at Equirus Capital. “The increase in effective service tax rate by introducing Krishi Kalyan Cess would dampen the positive changes made to the service tax laws,” said Amit Kumar Sarkar, Partner at Grant Thornton India.
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