Cess is the keyword now for many government to collect funds, but is the public made aware of how this cess is being used?
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It was the Swachh Bharat cess doing the rounds last month! First what is a cess? The Oxford Dictionary defines cess as a tax or levy in Ireland, Scotland and India. Why then do we call these taxes “cess” and not simply tax or a levy.
A tax may be imagined as any money the government collects for performing its general economic functions. Generally, this is a percentage of the money on what you receive or what you pay. Taxes may be direct or indirect depending upon the mode of collection.
A cess on the other hand is a tax on the tax that you paid, levied by the government for a specific purpose. Generally, cess is expected to be levied till the time the government gets enough money for the purpose it was meant for.
The background: In 1986 the Union Government levied its first cess, called the R&D Cess. This was a 5 percent levy on total Fees paid by any industrial company towards import of technology. The purpose behind this cess was ostensibly to raise money for R&D.
True to its spirit of lack of enthusiasm on R&D during the last six years the Government collected around Rs 4000 Cr as R&D Cess but paid only 500 Crores to the Technology Development Board. No prizes for guessing that the balance went towards the black hole called the Revenue Deficit.
Then came the Education Cess and the Higher Education Cess. The government imposed Higher Education Cess 1 percent and education Cess 2 percent on all taxes in 2007. For the first three years the utilization was nil – the government then woke up and created non-lapsable corpus to fund central aided institutions like IITs and IIMs. The Primary Education cess is being used for funding schemes under Sarva Siksha Yojana and the Mid Day Meal.
There is very little transparent user friendly data available in the public domain but my estimate is that we collect around Rs 7000 Crores as Primary and Secondary Education Cess.
Our standards of primary education in government and municipal schools are appalling! A principal of a government school here entreated me to build a shed leading to the girls’ wash room since he said in the monsoon girls do not come to school since they are averse of getting drenched on way to the wash room. Parents who can afford therefore send their children to private schools. Here the facilities are better but the salaries of teachers are lesser than a corporate chauffeur’s pay! Imagine the enthusiasm and dedication of these hapless teachers. And then we talk skilling as our priority.
The next was the Swachh Bharat cess imposed in the last budget; an initiative to tax all services at 0.5 percent of the service fees. The Swachh Bharat program was launched last year without any specific budget. In the current year there is a meager allocation of Rs 1700 crores. I estimate this cess will be able to garner around Rs 1000 cr additionally. Till date there is no transparency of how much has been collected and how much earmarked with heads of expenditure. All we know is that the toilets constructed have little takers.
The Swachh Bharat Abhiyan in my view is an important program and demands the highest priorities. There are issues of first the ‘software’ ie creation of awareness, logistics for garbage disposal and usage, building of utilities and commensurate facilities, devising and framing of legislations and deterrents for noncompliance applicable in all the thousand odd municipalities and state governments. Only then comes the issue of plants, equipments and utilities. It’s a mammoth but a priority in my view – demands much more.
The States: State governments also caught the contagious habit of levying cesses. The Goa government for example started levying cess on “hazardous materials transportation” also known as the Rural Improvement and Welfare Cess about six years ago. The other cess that has been put recently is the Goa Cess on Products and Substances causing Pollution on petroleum products and coal. The idea is good but why not have a plan for sustainability rather than first pollute and then pay. As usual there is hardly any information available to the tax payers on utilisation of their moneys.
Why cess? The advantages of using cess as the collection device rather than a tax is that it is specific and earmarked. The corollary would be that tax payers are kept informed on collections and expenditures on the various schemes.
This is bellied due to opacity of the user unfriendly reporting system – and you are left no wiser of the destination of your hard earned money.
Secondly – Swachh Bharat or Education are basic program and agenda of the government. The existing taxes should provide for their allocation and expenditure – rather than taxes going towards populistic agenda and subsidies and the tax payer again being approached for specific needs which in many cases remain unutilized ending up in meeting the deficits.
Lastly, with each financial statement the government must declare the collections and head wise accounts of each cess. Isn’t it an irony that on one hand the government says bring down taxes to international benchmarks and on the other goes on imposing cesses? Will that lead us to prosperity? In the words of Sir Winston Churchill…”...can people tax themselves to prosperity? Can a man stand in the bucket and lift himself up with the handles?
Binayak Datta is a senior chartered accountant and a corporate consultant. He is also a visiting lecturer at prestigious educational institutions across Goa
