Odisha seeks rollback of cess hike on Service Tax

Bhubaneswar: The Odisha government has urged the Centre to roll back the 1 percent Krishi Kalyan cess it imposed on Service Tax.

In a letter to Union Finance minister Arun Jaitley today, Odisha Finance minister Pradip Kumar Amat said while Article 270 of the Constitution of India provides for sharing of the proceeds of all Central taxes between the Centre and the states, the cess and surcharge levied by the Centre does not form a part of the divisible pool.

He said Centre has raised the rate of Service Tax from the existing level of 14.5 percent to 15 percent by imposing of 0.5 percent Krishi Kalyan Cess on all taxable services with effect from June 1 this year.

Earlier, the rate of Service Tax had been raised from 14 percent to 14.5 percent with the imposition of 0.5 percent Swachh Bharat cess from November 15, 2015. “Thus, within less than one year, the Centre has imposed 1 percent cess on Service Tax,” Amat pointed out.

He further said the share of cess and surcharge in gross tax revenue of the Centre, which has increased from 7.53 percent in 2000-01 to 13.14 percent in 2013-14, denies the states their rightful share in the tax devolution.

“Although successive Finance Commissions have recommended a review of the position and reduction in the share of cess and surcharge in gross tax revenue, it has not materialised so far. Increase in the financial resources of the Centre through imposition of cess and surcharge, which deprives the states of their rightful share in Central taxes goes against the spirit of cooperative federalism through which the states are said to be equal partners with the federal government,” Amat argued.

Apart from this, the Centre, by using its taxation powers, has imposed cess and surcharge to finance its share of the Centrally sponsored schemes while denying the same benefit to the states. On the other hand, it has also increased the state's share in Centrally sponsored schemes which is iniquitous, he noted.

“Had there been an increase in the rate of Service Tax, the states would have been benefited by way of their share in the Central taxes,” Amat observed and requested the Union minister to consider roll back of the 1 percent cess on Service Tax and increase the Service Tax rate by equivalent percent or fully fund the scheme for which the cess is being imposed without any state share.

In his reaction, BJP state general secretary Prithviraj Harichandan said the Centre will utilize its resources from the money it would get from the revised cess on Service Tax for coverage of several agriculture welfare programmes and activities and premium to the farmers under Pradhan Mantri Fasal Bima Yojana. Considering these, Odisha will be immensely benefited.

Referring to the Amat’s letter to the Union minister, he said it is indecent for a Finance minister of the state to have such irrelevant thinking without going into details.