How govt is cheating common public in the name of Swachh Bharat Cess

This diwali government exploded a huge bomb not only on India Inc. but common public as well. In Budget 2015 finance minister made way for levy of Swachh Bharat Cess (SBC) to the extent of max 2% on all or select services. This clearly meant hike in cost of services.

On November 6, 2015 CBEC issued notifications levying SBC to the extent of 0.5% on taxable services from November 15, 2015. On plain reading, it seems a very concerned government as they levied only 0.5% and not 2% but unfortunately, that's not case. Let's see how: 

These notifications issued by CBEC did not provide any clarity on credit admissibility of SBC (credit admissibility is embedded in a tax chain to set off tax paid on input services against tax paid on output services and only tax charged on final leg is received by government). Based on industry representations, few days later, CBEC clarified through a press release and FAQs that 'credit of SBC would not be available'. This announcement has a huge impact. Negative!

No cenvat credit of SBC means this will have a cascading effect - tax on tax effect. Therefore, the effective tax rate will be higher than 14.5% (14% ST + 0.5% SBC). This will eventually hit P&L or be passed on to consumer. In all likelihood, it will be passed on to consumer. On the other hand, government collects much more revenue than it would have had it allowed credit of SBC.

It seems a very smart move of fooling people and generating higher revenue. So, the concerned reduced levy of 0.5% and not 2% is spoiled by inadmissibility of cenvat credit as the ultimate effect could by 2% or higher. All this would eventually bring hike in services costing and taxes applicable on it. Bad days for consumers!