Agriculture Infrastructure and Development Cess (AIDC)

Agriculture Infrastructure and Development Cess (AIDC)

Subject: Economy

Context: As part of its effort to rein inflation, the Finance Ministry on Monday cut to zero the import duty on masur dal. However, the lentil will attract 10 per cent Agriculture Infrastructure and Development Cess (AIDC). The Centre cut the cess on all lentils to 10 per cent from 20 per cent as part of its effort to control the rising prices.

Concept:

• Cess is a kind of special-purpose tax which is levied over and above basic tax rates. The AIDC was introduced in the Budget 2021
• The purpose of the new AIDC is to raise funds to finance spending on developing agriculture infrastructure. Due to low private investment in agriculture, the Centre now seeks to raise a dedicated fund to meet these expenses
• The new cess will be levied on 29 products, prominent among which are gold, silver, imported apple, imported alcohol (excluding beer), imported pulses, imported palm oil, imported urea, and petrol/diesel including branded ones
• The AIDC is proposed to be used to improve agricultural infrastructure aimed at not only boosting production but also in helping conserve and process farm output efficiently.

Cess

• A cess imposed by the central government is a tax on tax, levied by the government for a specific purpose. Generally, cess is expected to be levied till the time the government gets enough money for that purpose.
• For example, a cess for financing primary education – the education cess (which is imposed on all central government taxes) is to be spent only for financing primary education (SSA) and not for any other purposes.
• A cess is different from the usual taxes like excise duty and personal income tax as it is imposed as an additional tax besides the existing tax (tax on tax).
• For example, the education cess of 3% on personal income tax of 30% is imposed as a tax on the prevailing 30%. As a result, the total tax rate goes up to 30.9% (30% basic rate + 3% (cess) of the 30%).
• But some cess like the Swachh Bharat Cess (SBC) is imposed as percentage tax on total value. Here the SBC is 0.5% of the value of the services.
• Tax revenue from Cess are first credited to the CFI and the Central Government may, after due appropriation made by Parliament, utilise the money for the specified purposes.
• For example, the proceeds are kept as Central Road Fund (CRF) in the case of fuel cess (on petrol and diesel).
• Another major feature of cess like surcharges is that the Centre need not share it with states.
• At present, the main cess are: education cess, road cess or (fuel cess), infrastructure cess, clean energy cess, krishikalyancess and swachhbharatcess.

Power to levy Cess

• Articles 270 and 271 of the Constitution, gives power to the Centre to collect cess and deposits it in the Consolidated Fund of India. However, the money is then supposed to be transferred to a segregated fund to be used for specific purpose.
• The money collected through cess and surcharge are not part of the divisible pool, from which devolution of Central taxes takes place to the States

 Effects

• The tax component in the final price will remain the same for most of the products.
• The consumer will not see any change in his/her bill and it is the duty of the importer and producer to make specific entry while filing tax/duty returns.
• It is States that need to worry as they may get less money in line with the devolution formula. This could affect some States’ specific welfare schemes