• 0.5% levy to apply to all services subject to service tax
  • About half of India's 1.3 billion people lack toilets

Prime Minister Narendra Modi imposed a tax to raise funds for his campaign to make India cleaner, striving to boost sanitation in a nation where about half the 1.3 billion population lacks access to toilets.

A levy of 0.5 percent will apply from Nov. 15 to all services liable to service tax, with the proceeds earmarked exclusively for the Swachh Bharat or Clean India initiative, according to a Finance Ministry statement released late on Friday.

Modi began the campaign shortly after taking power last year, seeking to build 110 million toilets and end open defecation by 2019. He faces an enormous challenge: some 75 percent of surface water is contaminated by sewage, and India is churning out trash at a faster rate than any of the other 25 largest producers of municipal solid waste on the planet, according to the World Bank. Much of that rots outside on city streets.

Based on estimated service tax receipts of roughly 2.1 trillion rupees ($32 billion) for the fiscal year ending March 2016, the levy would raise about 10 billion rupees over the period, according to N.R. Bhanumurthy, an economist at the National Institute of Public Finance and Policy, a government-backed research institute in New Delhi.

"The program requires a bigger funding as it encompasses sanitation, including building toilets, and not just an emphasis on cleanliness," he said, adding the levy is a prudent decision.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE