Lets get to the basics of Cess, before we explore more about Swachh Bharat Cess.
What is a Cess?
Cess is a tax on tax, temporary levied by the govt. to achieve a specific objective. Generally, it is expected to be levied till the time the govt. gets enough money for that purpose.
For instance, the education cess, that is levied currently, is meant to finance basic education in the country.
What is the quantum of revenue generated through Cess?
- The education and higher education cesses are budgeted to bring approx. Rs 30,000 crore this year.
- The road cess on petroleum is budgeted to net just under Rs 50,000 crore.
- There is also a cess on exports, clean energy, etc.
The total amount from cesses is Rs 1.16 lakh crore.
What is the criticism against Cesses?
- The problem with cesses is that it becomes permanent in nature.
- These levies are back door entry instead of levying taxes.
How Cess is different from Surcharge?
Surcharge is also a tax on tax, which is imposed on incomes above a certain level with a view to reduce the inequalities further.
- There is a surcharge of 12% on individuals whose taxable income exceeds Rs. 1 crore.
- Similarly, there is also a surcharge of 10% on the domestic companies whose taxable income exceeds Rs.10 crore, and also a surcharge of 5% on the foreign companies whose taxable income exceeds Rs.10 crore.
Now, let’s now come to the core of the topic
What is Swachh Bharat Cess?
The resources generated from the cess will be utilised for financing and promoting initiatives towards Swachh Bharat. It is a step towards involving each and every citizen in making contribution to Swachh Bharat.
- Govt. has introduced a cess of 0.5% on all services and 2% on air services.
- The revenue department is preparing a list of services which will attract the additional 2% cess provided for in the Budget 2015-16, over and above the proposed 14%.
Where does the proceeds of the Swachh Bharat Cess go?
The proceeds of the Swachh Bharat cess would be first credited to the Consolidated Fund of India. The govt. would be able to utilise it after due appropriation is made by Parliament by law. This will later go to Swachh Bharat Kosh.
The Government expects to collect around Rs 10,000 crore from Swachh Bharat cess for full year
Why does it goes against the principle of fiscal federalism?
- The central divisible pool excludes levies classified as surcharges and cess for specific purpose.
- The entire proceeds would remain with the Centre and need not be compulsorily shared with the states.
- Swachh Bharat cess, to some extent, is a vague pretext for a cess, unlike the ones for national highways or high-speed rail corridors, which can be more effectively implemented at the Central level.
What will be the impact of GST on the cess?
There is no input credit available on this cess, which goes against the very principle of the GST and thereby weakens the Centre’s case for pushing through GST.
The cesses and surcharges would be subsumed once the GST is rolled out. So both for tax payers and states, this is for the time being.
Published with inputs from Pushpendra