Pay more for services from 1 June as Krishi Kalyan Cess kicks in

Beginning 1 June talking over the telephone, eating out, buying an airline ticket and visits to beauty parlours will all turn dearer, with the 0.5 per cent Krishi Kalyan Cess (KKC) kicking in.

The Central Board of Excise and Customs (CBEC) has notified that the cess will come into force from 1 June 2016. The service tax is levied on all services, expect a small negative list.

The Krishi Kalyan Cess of 0.5 per cent, proposed by Finance Minister Arun Jaitley during his budget speech, is expected to make restaurant bills, mobile phones, cinemas, visits to beauty parlours, air travel, insurance, DTH, credit and debit cards, courier, healthcare, banking and professional consultancies costlier.

The Krishi Kalyan Cess would be payable even in cases where a service has been rendered and invoice has been issued prior to 1 June, but the payment is made after 1 June.

This would impact all services, especially banking, credit card and telecommunications where the invoices are prepared much before payments are made.

The new cess will make the government richer by Rs5,000 crore during the remaining 10 months of the current fiscal, but its benefits to the harried farmers are not yet clear.

The new cess will apply to all taxable services, and CENVAT (central value added tax) credit will be available to service providers on the cess paid on input services, the finance ministry has said. However, the input credit on the Krishi Kalyan Cess can only be used for discharge of the KKC liability.

Manufacturing units, however, will not be able to set off the cess paid on input services utilised by them and these units will have to absorb the added cost or pass it on to their customers.

Naturally, manufacturers will pass on the cess to the consumer, which would in turn add to inflationary pressures.

There is already a 0.5 per cent Swachh Bharat cess on the 14 per cent service tax and together with the new 0.5 per cent Krishi Kalyan cess service tax will effectively be 15 per cent.

The Krishi Kalyan Cess is not leviable on the component of service tax but the value of service, as in the case of the Swachh Bharat Cess.