Post budget: Can railways AFFORD to waive off service tax?

The loss that the railways will incur if they waive off the service tax could be as high Rs 2 crore a day

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For the first time in Independent India, the Railway Budget was merged with the Union Budget on Wednesday. While the government maintained that the move was aimed at bringing the railways to the centre stage of policy, the opposition claimed that the railways only got a cursory mention.

A train moves slowly amid a thick blanket of fog on a cold morning, in Allahabad.

With the merging of the rail budget with the union budget, not only does the railway ministry will get rid of the annual dividend they have to pay for gross budgetary support from the government every year but issue of raising passenger fares, an unpopular decision, will be Finance Minister Arun jaitley's call. The government also effectively removed special mentions of new projects, rail lines, additional routes and most importantly, hike in tariffs if any as Jaitley presented the Budget.

The government said that the focus this financial year would be on improving rail safety, pushing digital transactions, listing rail public sector units on stock markets. The finance minister, however, made a special mention of setting fares competing with other modes of transportation. Is this a hint of hike in rail fares in the near future?

Fare hike post elections?

During his speech, Jaitley said that railway tariff will be fixed based on social obligation cost. "Tariffs of railways would be fixed, taking into consideration costs, quality of service and competition from other forms of transport," he added. If this means a hike in the near future, the Bharatiya Janata Party may have just evaded announcing hikes during the budget keeping the upcoming five state assembly polls. Hike in railway fare in all likelihood will have an adverse impact on the support BJP receives from the voters of Uttar Pradesh, Punjab, Uttarakhand, Goa and Manipur.

The finance bill spoke largely about the cleanliness drive and innovation in railways in India but key issues of pricing, routes did not find mention. It is now a wait and watch for the people of the country on whether train travel gets costly.

Waived during demonetisation

The IRCTC had waived off service charge between November 23, 2016, and December 31, 2016 to help passengers and incentivise online payments in the wake of demonetisation of high-value Rs 500 and Rs 1,000 notes. The move had encouraged more people to book tickets online and seems to have inspired the government to consider waiving off service charge altogether.

Close to 12 lakh train tickets are purchased on the IRCTC website every day, accounting for almost 55 per cent of all the railway bookings in the country. Almost 33 per cent of its revenue comes from the service charge collected on online bookings. About Rs 540 crore of IRCTC's revenue of over Rs 1,500 crore in the last financial year came from ticket bookings reports have said.

Where will the money come from?

The government is already pressed for funds to ensure safety on tracks. With recent incidents of derailments, safety has become prime importance. It may be duly noted that the finance minister proposed to waive off service charge on e-tickets booked through Indian Railway Catering and Tourism Corporation. The move, in all likelihood, will cost the railways its revenue generation.

Earlier, the IRCTC used to levy a service charge of Rs 20 for sleeper class and Rs 40 on AC class e-tickets. The loss that railways will incur with the waiving off of service charge is being pegged at Rs 2 crore a day. The ministry will be compelled to look for alternate means to raise funds and hike in ticket fares is the most obvious choice.

The IRCTC, however, may be able to raise money from the market with Arun Jaitley announcing to list the railway PSU on stock markets. Along with IRCTC, the Indian Railway Finance Corporation and Ircon will also be listed on stock markets according to the finance minister's budget speech.

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