The Comptroller and Auditor General (CAG) of India has raised concerns over utilisation of the proceeds of cesses and surcharges imposts.
- “Scrutiny of cess and levies during 2020-21 revealed cases of short or non-transfer of collected amounts,” the CAG said in the Financial Audit of the Accounts of Union Government, tabled in Parliament.
Key concerns
- The audit scrutiny revealed short transfers of proceeds of cesses, including the Universal Access Levy (for Universal Service Obligation Fund to provide telecom services in rural areas) and National Mineral Trust Levy (levied at 2% of the mines royalty.) as well as the non-operationalisation of Madhyamik and Uchchatar Shiksha Kosh (MUSK).
- MUSK is funded through the health and education cess.
- The Madhyamik and Uchchatar Shiksha Kosh (MUSK) was approved by Union Cabinet in July 2017, it has not been operationalised due to non-finalisation of its accounting procedure.
- The government had on December 20 informed Parliament that cess and surcharges accounted for 28.1% of gross tax revenue in FY22, against 18.2% in FY20. However, this also includes the GST compensation cess, which are wholly appropriated by the states under a revenue guarantee mechanism.
- A cess is an additional tax levied by the government to raise funds for a specific purpose. Major cesses include the health and education cess, additional excise duties on petrol and diesel, road and infrastructure cess, national calamity contingent duty, cesses on crude oil and exports.
- Concerns are raised over lack of transparency over the usage of cess and surcharges. The Budget documents also do not reveal the exact utilisation of these levies.
- Some of the cess funds are shared with states for specific schemes and activities, the special excise duty on petroleum is solely used by the Centre and not given to states.
- Cesses and surcharges are not a part of the divisible pool of resources and can be used as per the discretion of the Centre.
- These cesses and surcharges create a kind of imbalance between the Union and the states in terms of financial powers.
About Cess
- Article 270 of the Constitution describes a cess. Cesses may be levied by the union or state governments.
- A cess is collected by the government for the development of a particular service or sector.
- The proceeds from the health and education cess cannot be used for any other means.
- Education cess was proposed to fund the free primary education and midday meal.
- Health cess was imposed to meet the health requirements of below-poverty-line families.
- The clean energy cess was introduced in 2010.
- Krishi Kalyan cess was introduced in 2016 to provide additional support to farmers for agricultural activities.
- The Swachh Bharat cess was introduced in 2014.
- In 2021, the Uttar Pradesh government had introduced “Corona cess” on liquor. After this, the prices of liquor were increased by Rs 10-40 per bottle.
About surcharge
- A surcharge is dealt with under Article 271 of the Constitution of India.
- Surcharge is tax on tax. It is levied on the tax payable for income generated. Suppose, you have an income of Rs 10000, on which you have to pay Rs 20 as tax. So the surcharge will be 10% on the 20 rupees tax that you have to pay, i.e. Rs 2. In India, a surcharge of 10% is levied if an individual’s net income is more than Rs. 50 lakhs and a surcharge of 15% is levied if the individual’s income is more than Rs 1 crore.
- The proceeds collected from a surcharge and a cess levied by the union form part of the Consolidated Fund of India.
- The funds need not be shared with the State governments and are thus at the exclusive disposal of the union government.
