CESS & SURCHAGES
- February 7, 2021
- Posted by: OptimizeIAS Team
- Category: DPN Topics
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CESS & SURCHAGES
Subject: Economics
Context : West Bengal Finance minister Amit Mitra Saturday said the Centre is on a spree to impose cess and surcharges to deny the states from getting their share of revenues
Concept:
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.
Surcharge
- Surcharge is a charge on any tax, charged on the tax already paid. As the name suggests, surcharge is an additional charge or tax.
- The main surcharges are that on personal income tax (on high income slabs and on super rich) and on corporate income tax.
- From the revenue side, surcharges are important as around 35% of all cesses and surcharges comes from the surcharge on direct taxes.
- A surcharge of 10% on personal income tax when the basic personal income tax rate is 30%. Effectively this surcharge of 10% raises the combined tax burden to 33%.
Cess and Surcharge
- A common feature of both surcharge and cess is that the centre need not share it with states. Following are the difference between the usual taxes, surcharge and cess.
- The usual taxes goes to the consolidated fund of India and can be spend for any purposes.
- Surcharge also goes to the consolidated fund of India and can be spent for any purposes. whereascess goes to Consolidated Fund of India but can be spend only for the specific purposes.
- The main difference between surcharge and cess is that despite they are not shareable with state governments, surcharge can be kept with the CFI and spent like any other taxes, thecess should be kept as a separate fund after allocating to CFI and can be spent only for a specific purpose.
- This means cess can be spent only for the specific purpose for which it is created. If the purpose for which the cess is created is fulfilled, it should be eliminated.