The Centre is
mulling imposing a 5 per cent service tax on rail passenger fares in the
forthcoming Budget. Freight traffic is, however, likely to be spared for the
time-being from the tax. According to government sources, the Centre can mop up
over Rs 500 crore from the service tax on rail fares for passengers.
While the
Railways are considering the possibility of raising passenger fares, the
proposal for a service tax has found more support in the finance ministry as
the money raised from a tax will accrue to the general exchequer instead of
finding its way into the Railways' kitty. Sources said, for instance, given the
projected Rs 11,387-crore revenue from passenger traffic this fiscal, a 5 per
cent service tax will translate into a revenue of Rs 569 crore for the Centre.
The buoyancy in the service tax collections in the current fiscal has also
encouraged the Centre to consider bringing the Railways under the tax net. The
amount garnered could be used by the Centre towards meeting the Rs 11
,965-crore Special Railway Safety Fund announced in October this year to be
spent over the next few years. The SRSF will be supplemented by a railway
surcharge ofRs 5,035 crore to finance the Rs
17,000-crore safety related investments being undertaken
by the Railways.
Sources added
that though a service tax should normally be levied on both passenger and
freight traffic, the proposal will omit revenue earning goods traffic. Of the
total freight traffic carried by surface transport, the Railways' share is
currently less than 40 per cent. Of this, 96 per cent comes from bulk
commodities like coal, food grains, iron ore and cement. The prospects of
imposing a service tax on freight in a recessionary year is very low, they
said. The revenue from freight traffic is estimated at Rs 28,552 crore in
2001-02.
The Railways
are, however, also pushing for a rise in passenger fares in the 2002-03 Budget
to generate funds for the cash-starved department. The department faces the
prospect of a cut-back in Plan expenditure of nearly Rs 1,000 crore in the
current fiscal. The Parthasarathi Shome committee on tax administration and tax
policy has also recommended a service tax on rail travel as part of the
value-added tax architecture. It has, however, said that the authority to levy
the tax should vest with the states rather than the Centre and the rates should
be identical with those levied on goods.