If you’re someone who likes to eat out a lot, I’m sure you certainly would have noticed a certain new addition in the long tax list of your food bill called the Krishi Kalyan Cess (KKC).
Applicable from June 1, 2016, foodies out on their foodie rendezvous are now charged an additional 0.5% KKC for availing services in a restaurant. Well, if you’re anything like me, you must have also been frustrated with the government for introducing yet another cess to the long lists of taxes that a common man has to pay. But, this time, I was determined to find out what is this KKC and how it helps. The article below is the account of my findings.
For starters, a cess is basically a tax levied by the government on the citizens of the country in an effort to raise capital for specific purposes. So, the Krishi Kalyan Cess, as the name suggests is a cess levied with an aim of raising funds for the betterment of agriculture and Indian farmers.
According to Article 270 of the Indian Constitution, Parliament imposed cesses designated for special purposes aren’t compulsory to share with the governments of the states. In case, there is an unspent bounty, the money is carried forward to be used in the next year. Hence, while in the case of other taxes, the central government has to share the revenue from the taxes with the state governments, but when it comes to KCC they get to keep the entire amount to themselves.
A KCC of 0.5% needs to be paid on all taxable services. The funds collected through the cess are invested exclusively in financing initiatives for the welfare of Indian farmers and agriculture. The capital collected is first transferred to the Consolidated Fund of India, after which the Central Government utilises the funds received for specific purposes.
Hence, the whole logic behind KCC is well-though after, considering the sorry condition of the Indian agricultural sector right now. However, to a regular Indian citizen it will be some additional bucks out of their pockets while paying their credit card bills, mobile bills etc.
Recently, the Indian government in its efforts to bring clarity on provisions that are governing the levy of the KKC cess, issued a number of circulars and notifications to make certain amendments in the current service-tax law in the country.
One of the amendments made was in relation to the Cenvat Credit Rules, 2004. According to the amendment, the Krishi Kalyan Cess has been merged with the Cenvat credit chain and the service-provider can avail the credit. It can only be paid either by cash or by using credit of Krishi Kalyan Cess only. This means, the KCC shouldn’t become a cost for a service-provider.
But, the person who is caught in an unhappy scenario is the manufacturer. The reason for this is, because credit for the Krishi Kalyan Cess hasn’t been made available to a pure manufacturer. A pure manufacturer is the one who pays excise duty on manufacturing of goods. This results in the KKC becoming an additional load on the goods which are manufactured on the Indian land, ultimately resulting in a considerable increase in their prices.
From a compliance point of view, the recent amendments made to the service tax have spurred a number of aspects that need to be diligently followed. For example, rebate of the KKC paid on the services used by exporter of services, levy of KKC on abated value of services, refund of the KKC amount paid on services used and received by special economic zone units, levy of KKC on services for which payment is made by the recipient of the service under the reverse charge mechanism and the KKC computation manner for specified service-providers such as a life insurer etc.
Hence, even though the thought behind KKC is noble, it however blindly fails all the other initiatives taken by the Indian government towards simplification of the business processes in the country.
There’s an urgent need for the government to make ensure that its one initiative doesn’t hamper the growth of its other initiatives. The government needs to pursue its ease of doing business, Make-in-India and Startup India projects with much more gusto and focus, because the KKC is most likely to hamper them as the increased manufacturing costs of the goods would ultimately result in hike in prices.
However, the service tax picture in the country can change substantially once the government is able to pass the Goods and Services Tax (GST) bill. It is anticipated that the GST bill will absorb all the cesses, leaving no space for them on our bills.