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Wednesday, September 02, 2009

Govt not to impose service tax on goods sent by rail

The government has withdrawn a proposal to impose a 10 percent service tax on goods transported by rail, to check price increases of products such as steel, cement and coal, a government official said on Tuesday.

In his budget for 2009/10, Finance Minister Pranab Mukherjee announced levy of service tax on a host of new services including transport of goods through railways. The tax was to come into effect from September 1.

"The "government has decided to exempt transport of goods in containers by rail from service tax, scheduled from Sept 1," Hemambika R. Priya, spokeswoman for Central Board of Excise and Customs, told Reuters.

The revenue receipts of the state-run Indian railways, which opposed new tax proposal, have been adversely affected since September last year due to economic slowdown and decline in exports.

During April-July period, railways' receipts from transport of commodities rose by 4.77 percent to 182.75 billion rupees as against 174.42 billion rupees during the corresponding period last year.

"Although we are in favour of expanding tax net, but keeping in view of difficult times for industry and consumers, it is perhaps a good decision," said D S Rawat, Secretary General of Associated Chambers of Commerce and Industry of India (ASSOCHAM), an industrial body.

He said the decision would help particularly "steel, cement and coal sectors which are bulk users of the Indian Railways, and contain prices for consumers."

Railways carried 284.77 million tonnes of commodity freight traffic during April-July 2009 against 270.73 million tonnes in the corresponding period last year - an increase of 5.19 percent.

Government expects to collect 650 billion rupees from service tax in 2009/10.

Analysts said the decision to withdraw tax proposal will also help exporters maintain a competitive edge in the global market, who are already facing a fall in demand since October last year.

India's exports fell an annual 28.4 percent in July to $13.62 billion, their 10th straight monthly fall, the government said on Tuesday, as the global slump trimmed demand for Indian goods.

Exports for April-July, the first four months of the 2009/10 fiscal year, were down 34.1 percent to $49.65 billion from the same period in the previous year.

source: Reuters
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