Cess

Subject: Economy

Context:

Comptroller and Auditor General of India (CAG) told Parliament that the Centre has only transferred Rs 1.64 lakh crore or 60% of the proceeds from cess / levies in FY19 to the relevant reserve funds and retained the balance in the Consolidated Fund of India (CFI).

Concept:

• A cess is a form of tax levied by the government on tax with specific purposes till the time the government gets enough money for that purpose.
• Different from the usual taxes and duties like excise and personal income tax, a cess is imposed as an additional tax besides the existing tax (tax on tax). For example, the Swachh Bharat cess is levied by the government for cleanliness activities that it is undertaking across India.
• A cess, generally paid by everyday public, is added to their basic tax liability paid as part of total tax paid.
• Centre collected over ₹2.74-lakh crore through 35 types of cesses during FY19.
• Under the rules, the collection first needs to be transferred to Reserve Funds and then used for the specific purposes as approved by Parliament.
• Funds collected through Central taxes along with cesses and other levies go to the CFI.
• Here, taxes and surcharges are parked in a divisible pool and 42 per cent of the total is given to States as devolution.
• The money collected via cesses is used by the Centre for specific purposes through dedicated funds of the administrative ministries.
• A ‘Social Welfare Surcharge’ on Customs Duty, amounting to over ₹8,800 crore, was levied but a dedicated fund for the same was not envisaged.
• Non-creation, non-operation of Reserve Funds makes it difficult to ensure that cesses and levies are utilised for the specific purposes intended by Parliament.
• The report highlighted that over ₹40,000 crore of GST Compensation Cess (levied on some goods falling under the 28 per cent rate bracket) was not credited to the related Reserve Fund.
• Similarly, ₹10,157 crore of the Road and Infrastructure Cess collected during FY19 was neither transferred to the related Reserve Fund nor used for the specific purpose.