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The decision to impose 0.5 per cent cess will translate into a tax of 50 paise only on every Rs 100 worth of taxable services.
All services, including air travel, telephony, eating out and banking will become expensive from November 15 as the government on Friday decided to impose a 0.5 per cent cess on all taxable services to fund the Swachh Bharat programme.
The additional cess would be over and above the 14 per cent Service Tax rate which is already being levied and may yield the government an additional about Rs 400 crore (Rs 4 billion) during the remainder of the current fiscal.
"The government has decided to impose, with effect from November 15, 2015, a Swachh Bharat Cess at the rate of 0.5 per cent on all services, which are presently liable to service tax," a Finance Ministry statement said.
Finance Minister Arun Jaitley had in Budget 2015-16 proposed to levy a Swachh Bharat cess of up to 2 per cent "on all or certain services, if need arises".
The decision to impose 0.5 per cent cess will translate into a tax of 50 paise only on every Rs 100 worth of taxable services.
"Swachh Bharat cess is not another tax but a step towards involving each and every citizen in making contribution to Swachh Bharat. The proceeds from this cess will be exclusively used for Swachh Bharat initiatives," the statement added.
Swachh Bharat is among the major initiatives of the Modi government, which has embarked on a major drive to ensure cleanliness across the country.
In his Budget speech on February 28, Jaitley had said: "This cess will be effective from a date to be notified. Resources generated from this cess will be utilised for financing and promoting initiatives towards Swachh Bharat".
The government had in Budget 2015-16 estimated to collect over Rs 2.09 lakh crore from service tax. The Rs 400 crore collection from the cess would be over and above that.
The Finance Ministry statement said that being a vast and populous country with 120 crore (Rs 1.2 billion) people, there is a fair share of cleanliness concerns.
It said persons entrusted with the job of keeping our country clean, struggle constantly.
"Cleanliness also has huge impact on public health. Dirty surroundings also cause many diseases like malaria, dengue, diarrhea, jaundice, cholera etc., with associated high public health expenditure," it added.
According to government estimates, expenditure on health adds up to Rs 6,700 crore annually (approximately Rs 60 per capita).
"Increased allocation for Swachh Bharat Abhiyan can prevent many of these diseases with consequential benefit to one and all," it added.
A study by American Journal of Tropical Medicine and Hygiene reveals that between 2006 and 2012, India reported an annual average of 20,474 dengue cases, with direct medical cost of about Rs 3,500 crore (Rs 35 billion) per annum, the statement said.