Cess will tax aam aadmi, push up inflation

The two new cesses, Krishi Kalyan Cess (KKC) on services and infrastructure cess on automobiles, are going to make things costlier for the people and push up the inflation.

In the Union Budget, Mr Arun Jaitley levied an infrastructure cess of one per cent on small petrol, LPG, CNG cars, 2.5 per cent on diesel cars (of length not exceeding 4 metres and engine capacity not exceeding 1,500 cc) and 4 per cent on higher engine capacity vehicles and SUVs.

Car companies Maruti, Hyundai, Honda, Tata Motors and Mercedes-Benz, among others, have started passing on the levy to the consumers and hiked the prices of their vehicles. India’s largest carmaker Maruti Suzuki has hiked ex-showroom prices of its vehicles between Rs 1,441 to Rs 34,494 across its models. Hyundai Motor India, second-largest carmaker in the country, raised prices between Rs 2,889 and Rs 82,906 depending upon the model.

However, more than the infrastructure cess, it is 0.5 per cent Krishi Kalyan Cess from June 2016 which will put upward pressure on the prices as it is imposed on all services. After this cess, the service tax will increase to 15 per cent. People will have to pay more for mobile phone calls, eating out at restaurants, air tickets, cable and DTH services, among others. Krishi Kalyan Cess would be exclusively used for financing initiatives relating to improvement of agriculture and welfare of farmers. It will make host of services costlier, like visits to the beauty parlours, courier service, credit- and debit card-related services, chartered accounts, architects, insurance and demands raised by real estate builder for housing projects, among others. Last year Mr Jaitley, had increased service tax from 12.36 per cent to 14 per cent in the Budget and subsequently imposed Swachchh Bharat Cess at 0.5 per cent, taking it to 14.5 per cent from November 15, 2015.

“To the extent the companies will pass the infra and Krishi Kalyan Cess, it will push the inflation. However, the government has kept the fiscal deficit target for the 2016-17 at 3.5 per cent so it hints that it does not want to splurge and push the consumption demand, so that is relief on inflation. But net-net the Budget will push up inflation,” said Sunil Kumar Sinha, director (public finance) and principal economist, India Ratings and Research.

Soft drinks and mineral water will also be dearer as the finance minister proposed to hike excise duty on “water, including mineral water, aerated water containing added sugar or sweetening matter” to 21 per cent from 18 per cent earlier. Branded readymade garments costing Rs 1,000 or more will become costlier as the excise duty on them has been increased to 2 per cent without CENVAT credit from nil earlier.