Non-utilisation of Cesses & Levies

• 24 Sep 2020

Why in News

Recently, the Comptroller and Auditor General of India (CAG) told Parliament that the Centre has only transferred 60% of the proceeds from cess/levies in Fiscal Year 2018-19 to the relevant Reserve Funds and retained the balance in the Consolidated Fund of India (CFI).

Key Points

• Non-utilisation of Funds:
  
  • The Centre had collected Rs. 2.75 lakh crore from 35 cesses/levies in FY19. However, it has only transferred Rs. 1.64 lakh crore and retained Rs. 1.1 lakh crore in the CFI.
    
    • Rs. 40,000 crore of GST Compensation Cess was not credited to the related Reserve Fund.
    • Rs. 10,157 crore of the Road and Infrastructure Cess collected was neither transferred to the related Reserve Fund nor utilised for the purpose for which the cess was collected.
    • Rs. 2,123 crore of Universal Service levy and Rs. 79 crore collected as National Mineral Trust levy was not transferred to the relevant Reserve Funds.
    • Social Welfare Surcharge on Customs amounting to Rs. 8,871 crore was levied but no dedicated fund for the same was envisaged.
      
      • Non-creation/non operation of Reserve Funds makes it difficult to ensure that cesses and levies have been utilised for the specific purposes intended by the Parliament.
  • In addition, Rs. 1,24,399 crore, representing the Cess on crude oil collected between 2010-20, had not been transferred to the Oil Industry Development Board (designated Reserve Fund) and was retained in CFI.
• Mechanism of Utilisation:
  
  • Cesses and levies collected are required to be first transferred to designated Reserve Funds and utilised for the specific purposes intended by Parliament.
  • Funds collected through Central taxes along with cesses and other levies go to the CFI.
    
    • Taxes and surcharges in CFI are parked in a divisible pool and 42% of the total is given to States as devolution.

Consolidated Fund of India

• It was constituted under Article 266 (1) of the Constitution of India.
• It is made up of:
  
  • All revenues received by the Centre by way of taxes (Income Tax, Central Excise, Customs and other receipts) and all non-tax revenues.
  • All loans raised by the Centre by issue of Public notifications, treasury bills (internal debt) and from foreign governments and international institutions (external debt).
• All government expenditures are incurred from this fund (except exceptional items which are met from the Contingency Fund or the Public Account) and no amount can be withdrawn from the Fund without authorization from the Parliament.
• The CAG audits the fund and reports to the relevant legislatures on the management.

Cess

• Cess is a form of tax levied over and above the base tax liability of a taxpayer.
• Cess is resorted to only when there is a need to meet the particular expenditure for public welfare.
• Cess is not a permanent source of revenue for the government, and it is discontinued when the purpose of levying it is fulfilled.
• It can be levied on both indirect and direct taxes.
• Examples :
  
  • Swachh Bharat Cess: Introduced in 2015, a 0.5% Swachh Bharat cess was imposed to fund a national campaign for clearing the roads, streets and the infrastructure of India.
  • Infrastructure Cess: Announced in Union Budget 2016, this cess was charged on the production of vehicles.

Surcharge

• A surcharge is an extra fee, charge, or tax that is added on to the cost of a good or service, beyond the initially quoted price.
• It is added to an existing tax and is not included in the stated price of the good or service.
• It is levied for extra services or to defray the cost of increased commodity pricing.

Source: TH