Indian Railways can also face some problems with Goods and Services Tax (GST). This can increase the cost of railway signaling, telecom, electrification and new coaches, locomotives and wagon. Now the Railways gives 12% tax on signaling and telecom equipment, which will increase to 28% after the GST is implemented. Railways spend about Rs 4,000 crore on signaling and telecom each year. Coaches, weils and locomotives now have a tax of 6%, which will increase from 1 July to 18%. Railways buys rolling stock of 20,000 crores each year from its production units.
A senior railway official said, “The construction of new infrastructure and the operational cost of the railway can be increased due to GST. Our financial condition is not good and it is not easy to increase the rail fares. This will be a big problem for us. The GST would not be imposed on those rolling stock and other things being taken from the railway companies. The Ministry of Finance has fixed a 5% GST on the transfer of rolling stock from one zone to another zone. Railways also wants that tax on container cargo be levied for 5%, while in GST a tax of 12% has been proposed.
In fact, a 5% GST on road freight has been fixed. Railways say that having 5 percent GST on container cargo will help it to compete with logistics companies operating through road. “All these cases have been raised in front of the Finance Minister and the GST Council is considering these. We are appealing to these issues to be resolved soon. However, as the input tax credit, the railways are also going to benefit. Railways have planned to reduce their tax liability through input tax credits on the work contract. A senior official said that the Railways pays an annual service tax of Rs 6,700 crore on their total revenue. It can be reduced to Rs 2,000 crore by tax credit on the work contract.
Production companies used to claim some refunds. Now we can claim tax refunds for work contracts and other contracts. Tax on Freight and AC Class Passenger Service has been increased by 5%. Earlier, both the AC and freight had a service tax of 4.5%. Railways have decided to put its burden on customers.