Why in News ?
The Comptroller and Auditor General (CAG) of India, in its latest audit report of government accounts, has observed that the Union government withheld in the Consolidated Fund of India (CFI) more than Rs. 1.1 lakh crore out of the almost Rs. 2.75 lakh crore collected through various cesses in 2018-19. The CAG found this objectionable since cess collections are supposed to be transferred to specified Reserve Funds that Parliament has approved for each of these levies.
The nation’s highest auditor also found that over Rs. 1.24 lakh crore collected as Cess on Crude Oil over the last decade had not been transferred to the designated Reserve Fund — the Oil Industry Development Board — and had instead been retained in the Centre’s coffers along with GST compensation Cess.
What is a cess?
- The Union government is empowered to raise revenue through taxes (both direct and indirect), surcharges, fees and cess. While direct taxes, including income tax, and indirect taxes such as GST are taxes where the revenue received can be spent by the government for any public purpose in any manner it deems appropriate for the nation’s good, a cess is a earmarked tax that is collected for a specific purpose and ought to be spent only for that. Every cess is collected after Parliament has authorised its creation through an enabling legislation that specifies the purpose for which the funds are being raised. Article 270 of the Constitution allows cess to be excluded from the purview of the divisible pool of taxes that the Union government must share with the States.
How many cesses does govt. levy?
- Post Independence, the cess taxes were linked initially to the development of a particular industry, including a salt cess and a tea cess in 1953. Subsequently, the introduction of a cess was motivated by the aim of ensuring labour welfare. After 2012 Cess were levied for Education field and later in 2015 Swachh bharat and Krishi Kalyan Cess. The introduction of the GST in 2017 led to most cesses being done away with and as of August 2018, there were only seven cesses that continued to be levied including GST Compentation Cess. In February, Finance Minister Nirmala Sitharaman introduced a new cess — a Health Cess of 5% on imported medical devices — in the Finance Bill for 2020-2021.
Why is the issue in the news currently?
- The CAG’s finding that the Centre retained Rs. 47,272 crore of GST compensation cess in the Consolidated Fund instead of crediting it to the GST compensation fund in the very first two years of the implementation of the new indirect tax regime has raised several key questions. For one, most crucially, the express purpose of this particular cess is to help recompense States for the loss of revenue on account of their having joined the GST regime by voluntarily giving up almost all the power to levy local indirect taxes on goods and services. If a state's revenue grows slower than 14 per cent, it is supposed to be compensated by the Centre using the funds specifically collected as compensation cess. However Finance Ministry has denied CAG report findings and said that there was no diversion of GST Cess Fund.