Government has decided to impose a 10% service tax on
movement of freight through railways w.e.f 31st March 2012.
The tax will impact prices of coal, steel, iron ore and
cement if companies that mine or manufacture these commodities decide to pass
on the burden to consumers.
As per railway ministry's circular, finance ministry has
given abatement of 70% of gross freight charged by railways. So effectively,
the tax rate would be levied at 3%. Imposition of service tax will also attract
education cess of 2% and higher education cess of 1% on the amount of service
tax, raising the total rate to 3.09%.
The government will benefit as its tax kitty will swell with
inclusion of around Rs1,000 crore in the form of service tax on freight.
However, “the move could hit railways revenues a bit
initially as there is likelihood of a minor reduction in movement of these
items by the national transporter,” a senior railway ministry official said.
The four items contributed 70% to railways earnings during April-November 2011.
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