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Service tax on upper class rail travels: FinMin expects no opposition

Railway minister Dinesh Trivedi may have lost his job for hiking railway fares,but the finance ministry is hopeful that its Budget proposal to charge service tax on some railway services will not face similar opposition

Written by ENS Economic Bureau | New Delhi | Published: March 20, 2012 1:33:55 am

Railway minister Dinesh Trivedi may have lost his job for hiking railway fares,but the finance ministry is hopeful that its Budget proposal to charge service tax on some railway services will not face similar opposition.

“Our intention is not to earn revenue but to remove the cascading effect of taxes and ensure that all services are under the service tax net,” finance secretary RS Gujral,who is also the revenue secretary said,adding that the finance ministry had held several rounds of discussions with Rail Bhawan officials.

“So it’s not as if they will be taken by surprise,” he said.

The Finance Bill,2012,seeks to levy service tax on First Class and AC passenger travel. It also proposes to charge service tax on freight,though essential commodities will be excluded from the tax net.

“We have provided a 70 per cent abatement on both the freight and passenger side as well as input tax credit. So on a total sum,government will not earn anything,” Gujral said.

Back of the envelope calculations show that fares of AC-I,II and III could rise by about 12 per cent if railways decides to pass on the hike to the customers.

Railway officials are however wary of the move that has come at a time when railway finances are severely strained.

Sources said the ministry is still not decided on whether it will absorb the service tax hike or to pass it on to passengers by hiking fares. Such a contentious move may not even pass muster with Trinamool Congress chief Mamata Banerjee ensuring that Trivedi was removed for his plan to hike rail fares.

Significantly,a similar proposal in the last Budget was also rolled back after hectic lobbying by Banerjee,who was then the railway minister.

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