In a bid to create a level playing field between roadways and railways freight, the government on Monday announced that goods carried by railways would now be charged with service tax.
“In the goods transport sector, service tax is currently levied on transport of goods by road, by air, through pipelines and in containers. However, goods carried by Indian Railways or those carried as coastal cargo or through inland waterways are not charged to service tax,” said Finance Minister Pranab Mukherjee.
“In order to provide a level playing field in the goods transport sector, I propose to extend the levy of service tax to these modes of goods transport,” he said.
In spite of this, freight via railways would continue to be cheaper than roadways as the latter has to endure multiple taxation in the form of toll taxes. The rationalisation of service tax in the transport sector was recommended by the Kelkar Committee as well.
“Service tax on transportation of goods by railways is a long overdue move and will increase freight cost by 2.5 per cent,” said SP Singh, senior fellow and coordinator, Indian Foundation of Transport Research and Training. “Even then rail freight will remain cheaper compared to road freight which has been covered under service tax net since January 2005.”
Despite the higher cost, roadways freight account for a commanding 79 per cent share in total freight movement in the country on medium and long haulage.