The Finance Minister, Mr Pranab Mukherjee, may have finally found a way to get Ms Mamata Bannerjee to toe the Centre's line on Railway finances.
Although Ms Bannerjee relinquished the Railway Minister's job to become West Bengal Chief Minister, her writ continues to run in Rail Bhawan since a Trinamool Congress appointee is the Railway Minister.
And the Trinamool Congress chief has been implacably opposed to increasing railway passenger fares, despite the deteriorating financial position of the Railways.
The bargaining tool this time round is the Centre's plan to usher in a ‘negative list' approach to taxation of services in the upcoming Budget. The Finance Ministry could slap a service tax on AC passengers, in effect raising the fares, if the Railways does not directly hike passenger fares.
NEGATIVE LIST
Simply put, a negative list of services implies: First, a list of services that will not be subject to service tax. Second, it is implicit that all services other than the ones mentioned in the negative list will become taxable.
If Ms Bannerjee does not relent on a fare hike in the Railway Budget, there is always the prospect of the Finance Ministry using the Union Budget to indirectly increase rail passenger fares.
By bringing the air–conditioned train travellers under the service tax net (10 per cent tax rate), the Finance Ministry can mop up an estimated Rs 720 crore. This is a drop in the ocean when seen against the overall service tax kitty of nearly Rs 80,000 crore.
But from the standpoint of rail passengers, this would amount to a rail fare hike of 10 per cent, if implemented.
FREIGHT FIASCO
However, this has to be seen in the context of the Finance Ministry's unsuccessful attempts in implementing service tax on rail freight earlier. Since April 1, 2010, when the service tax was originally proposed to come into force, the levy on rail freight has been deferred six times.
The latest date when service tax on rail freight is proposed to come into effect is April 1, 2012. This move would have translated into revenues of Rs 1,500-2,000 crore for the exchequer, at an effective service tax rate of 3.5 per cent of the freight earnings.