Government gives a burdensome diwali gift and introduces Swachh Bharat Cess
This Diwali enjoy shopping and festivities at the fullest. Soon after diwali, all the services you avail, including eating-out, movies, air fare and so on, shall get costlier so as to ensure a cleaner nation.
The Central Government has decided to levy the Swachh Bharat Cess from November 15, 2015 at a rate of 0.5%.This will translate into a tax of 50 paisa only on every one hundred rupees worth of taxable services,” the statement said. “Swachh Bharat Cess is not another tax but a step towards involving each and every citizen in making contribution to Swachh Bharat,” it said.
History of the “Swachh Bharat Cess”
The Swachh Bharat Cess does not come as a rude shock from the government. A hint for the same had already been given in the budget declared earlier this year wherein the government had raised service tax to 14% from 12.36% (including cess) and retained the option of levying a cess of upto 2% on any or all services to fund Swachh Bharat Mission if needed.
In our country, health expenditure adds upto Rs. 6,700 crore annually i.e. Rs. 60 per Capita (approx). Instead of such curative expenses on health, it is always better to take preventive measures. Cleanliness is the pre-requisite for good health and hygiene. Hence the government has introduced Swachh Bharat Cess for a cleaner and healthier nation.
As per the plans of the finance ministry, the proceeds from the new cess, which are estimated to be Rs.400 crore in the remainder fiscal year, will be used exclusively for the Swachh Bharat initiative.
Applicability of the Swachh Bharat Cess – Notification no. 21/2015-ST and 22/2015-ST
The Swachh Bharat Cess shall be levied from the 15th of November, 2015 on all services except those services which are either covered by the negative list or are specifically declared to be exempt.
The Swachh Bharat Cess gets its legal right to be levied in accordance with the Notification no. 21/2015 – ST. Further the government has also issued another notification no. 22/2015-ST whereby exemption has been granted in excess of SBC calculated at the rate of 0.5 percent of the value of taxable services.
This means that effectively, rate of cess would be 0.5% and new rate of service tax would be 14.5%.
FAQ’s with regards to the Swachh Bharat Cess
Q1: In case of services covered by abatement, what would be effective rate of tax? Say GTA service where presently tax is payable at 4.2% (14%*30%)?
Ans: Section 119 states that the Swachh Bharat Cess would be levied and collected as service tax. Further, sub section 5 provides that provision of chapter V of the Finance Act would apply to Swachh Bharat Cess as they apply to service tax. The abatement notification is issued under section 93 (chapter V) of the Act. So, this notification would apply for Swachh Bharat Cess in the same manner as it applies for service tax. Hence, the effective rate of tax on all abatement services would be 14.5% * effective rate under Notification 26/2012-ST. For GTA, it would be 14.5%*30%= 4.35% and not 4.2%+0.5%= 4.7%
Q2: In case of works contract, how would the tax be calculated?
Ans: The value of services would be calculated as per Rule 2A of Service Tax (Determination of Value) Rules, 2006. Tax needs to be applied on the value so arrived at the rate of 14.5%. Effective rate of tax in case of original works and other than original works would be 5.8% (14.5%*40%) and 10.15% (14.5%*70%) respectively. Similar, would be for restaurant and outdoor catering services.
Q3: I am paying service tax on few services under reverse charge mechanism. How would SBC have impact on my tax liability?
Ans: Swachh Bharat Cess would be applicable on all taxable services. Hence, you need to pay Swachh Bharat Cess along with service tax on the services availed by you.
Q4: Whether Swachh Bharat Cess needs to be collected and paid separately from service tax or subsumed in existing service tax rate?
Ans: Swachh Bharat Cess would be levied, charged, collected and paid to government independent of service tax. This means that it has to be charged separately on the invoice, needs to be accounted separately in the books of account and needs to be remitted separately under separate accounting code which should be notified separately. This is similar to the remittance of Education Cess and Higher Education Cess earlier when the service tax rate was 12.36%.
Q5: Services presently provided by me are covered by mega exemption notification i.e. 25/2012-ST. Do I need to charge Swachh Bharat Cess on services provided by me?
Ans: No, Notification No. 22/2015 specifically provides that Swachh Bharat Cess would not be applicable on services exempted from levy of service tax. Hence, you need not to charge Swachh Bharat Cess on the services covered by mega exemption notification. Similar would be treatment of negative list services.
Q6: How would liability be determined in case of reverse charge services where services have been received prior to 15.11.2015 but consideration paid post 15.11.2015?
Ans: In case of reverse charge services point of taxation ,as per Rule 7 of Point of Taxation Rules, would be the date on which consideration is paid to service provider. Hence, Swachh Bharat Cess would also be required to be paid in cases wherein the consideration is received after 15.11.2015.
Q7. Whether Swachh Bharat Cess paid on input service would be eligible as credit?
Ans: The amendments vide Notification no. 21/2015-ST and 22/2015-ST affect only the service tax rate and its remittance. The Cenvat Credit Rules, 2004 remain unchanged. Due to this as of now, there is no amendment regarding availment and utilisation of Swachh Bharat Cess. In the absence of the same, credit would not be admissible.
Q8. What would be impact of imposition of Swachh Bharat Cess on cost of goods and services?
Ans: In the absence of any notification providing for availment of credit of Swachh Bharat Cess, it would directly add to the cost of product and services. Following is a table wherein its impact has been explored:
|Manufacturer||Additional Cost of 0.5% on all services factored|
|Service Provider||Swachh Bharat Cess on Input services availed adds to the cost|
|Exporter||No refund for the Swachh Bharat Cess paid|
Q9: I am manufacturing excisable goods. Do I also need to charge Swachh Bharat Cess in addition to excise duty?
Ans: No, Swachh Bharat Cess is levied under chapter VI of the Finance Act, 1994 and is applicable only on provision of service. There is no imposition of Swachh Bharat Cess on the goods manufactured hence, you are not liable to pay SBC on manufacturing of excisable goods.
The insight behind the levy and collection of Swachh Bharat Cess is highly appreciable. Finally we do hope that “Acche Dinn Annewale hai” but the levy comes as a huge blow to the common man with increase in the tax rate. The effect on an individual seems negligible but there are chances that it shall render the whole economy over-burdened under the psychology of an additional levy.
Furthermore certain issues such as separate remittance of the cess leading to administrative and accounting complexity and non – provision for credit on Swachh Bharat Cess needs immediate address so as to avoid cascading effect of taxes.
Heer Gajjar, KCJM
You can reach her on firstname.lastname@example.org