Government burns a hole in your pocket

You may not be sure about this year's increment but your cost of living has jumped from Wednesday with the government unleashing a slew of levies and hikes in the form of Kishan Kalyan Cess (KKC), upward revision of petroleum products prices, 1% luxury tax on cars costing over Rs10 lakh, service tax of 4.5% on Indian freight service providers, increase in Securities transaction tax (STT) to 0.05% from 0.017% and others.

The KKC of 0.50%, which has been introduced by the government to raise funds for improving the agriculture sector and the welfare of the poor farmers, will directly impact the middle class taxpayer's spends on mobile services, restaurants, movies, banking, hospitality, AC train fares, air tickets, healthcare and a host of other services.

He will also get hit by petrol prices being increased by Rs 2.58 per litre and diesel by Rs 2.26 per litre in the latest revision by the oil marketing companies (OMCs) on Wednesday to factor in recent rise in global crude prices.

The price of non-subsidised LPG cylinders has been raised by Rs 21 per cylinder and the aviation turbine fuel (ATF) prices was tweaked upward by 9.2%.

It doesn't end here. Cars costing over Rs10 lakh would now attract luxury tax of 1%. This can, however, be offset against the total tax liability of the buyer.

Further, 1% tax will be collected at source for cash payment for goods and services worth more than Rs2 lakh. The limit for cash payment of gold jewellery for tax would continue to be Rs 5 lakh. Securities transaction tax (STT) on sale of options has been increased to 0.05% from the current 0.017%.

EY partner Uday Pimprikar, said since KKC and excise duty on petroleum products – barring ATF – was non-cenvatable they tend to get passed on to the end consumers by service providers, manufacturers and traders.

Non-cenvatable means no credit can be availed for the excise paid to the government. Even the Swacch Bharat Cess of 0.50%, which was imposed by the government last year, is non-cenvatable.

"All of these were dis-incentivising the Make in India programme. It is in conflict with it. That is the big issue. Even hike in petroleum products price will translate into increase into overall increase costs for Indian manufacturers.

The cost of landed good are likely to increase," he said.

On a standalone basis, he said, it was not a huge increase in the cost but its cascading impact on the manufactured goods would seriously impair an Indian producer's competitiveness.

The steep hike in jet fuel prices is also likely halt the supersonic speed of air passenger traffic growth in the country. India's number of fliers has been growing at a healthy clip of over 20% since the easing of global crude oil prices that has facilitated airlines to lower fares.

Sharat Dhall, president, Yatra.com, fears higher jet fuel prices will result in higher airfares that "will act as a damper" for air travel.

"This (ATF price rise) could result in an increase in airfares as fuel constitutes approximately 40% of an airline's operating costs. Any increase in airfares will act as a damper for travellers planning trips going forward," he said.

Pimprikar is more concerned about the Indian freight services industry, which has been straddled with a 4.5% service tax along with the 0.50% KKC. This, he said, worked as "negative protectionism" because it disadvantaged the Indian players against foreign logistic services firms.

"They have imposed a (service) tax (at the rate of 4.5%) on inbound freight activity on receipt by Indian service provider or received by an Indian importer or trader. It is not liable when it is provided and received by foreign parties. This creates a negative protectionism against the Indian industry," he said.

According to him, world over freight services are zero rated, which means that there are no tax levied or credits available on them.

The government is expecting to raise Rs 5,000 crore through KKC. In 2015-16, the government's tax revenue was Rs 9.44 lakh crore after fund transfer to states. Its total revenues from tax was Rs 12.4 lakh crore in the same year.