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Concerns in Utilization of Cess

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June 20, 2019

What is the issue?

  • Just as taxpayers have a responsibility to pay taxes, the government ought to ensure that tax proceeds are appropriately utilized.
  • But the picture on utilization of the cess proceeds of the country is far from this ideal.

What is a cess?

  • A cess is a tax on tax, levied by the government for a specific purpose.
  • It is levied on the tax payable and not on the taxable income.
  • In a sense, for the taxpayer, it is equivalent to a surcharge on tax.
  • A cess can be levied on both direct and indirect taxes.
  • Recent examples of cess are:
    1. infrastructure cess on motor vehicles
    2. clean environment cess
    3. Krishi Kalyan cess (for the improvement of agriculture and welfare of farmers)
    4. education cess
  • Unlike a tax, a cess is levied to meet a specific purpose; its proceeds cannot be spent on any other kind of government expenditure.
  • E.g. the proceeds from the education cess cannot be used for cleaning the environment and vice versa
  • To meet specific socio-economic goals, a cess is preferred over a tax because it is relatively easier to introduce, modify, and abolish.

How is cess proceeds managed?

  • The proceeds of all taxes and cesses are credited in the Consolidated Fund of India (CFI).
  • The approval of the Parliament is necessary to withdraw funds from the CFI.
  • The tax proceeds are shared with the States and Union Territories according to the guidelines by the Finance Commission.
  • But the cess proceeds need not be shared with them.
  • In order to utilize the cess proceeds lying in the Consolidated Fund of India (CFI), the government has to create a dedicated fund.

What is the current education cess?

  • The education cess, at 2%, which was first proposed in 2004, was aimed at improving primary education.
  • In 2007, an additional cess of 1% was introduced to fund secondary and higher education (SHEC).
  • Recently, in the 2019 Union Budget, a 4% health and education cess was announced.
  • This incorporates the previous 3% education cess as well as an additional 1% to provide for the health of rural families.

What are the concerns with education cess?

  • Unutilized Fund - There has been an increase in the amount of education cess collected via corporation tax and income tax over the years.
  • From the inception of the education cess until 2019, the total proceeds have been around Rs. 4,25,000 crore.
  • The dedicated fund created for primary education is the ‘Prarambhik Shiksha Kosh’ (PSK) in 2005.
  • Likewise, that for higher and secondary education is the ‘Madhyamik and Uchchtar Shiksha Kosh’ in 2017.
  • It is uncertain why the government set up this dedicated fund for higher and secondary education in 2017, 10 years after the introduction of SHEC.
  • But it is contentious that this fund had remained dormant as of March 2018.
  • Comptroller and Auditor General audit data show that around Rs. 94,000 crore of SHEC proceeds is lying unutilized in the CFI.
  • Expenditure - The unspent account, if seen in conjunction with the expenditure on education, reveal the high degree of economic injustice.
  • In 2017-18, the public expenditure on school and higher education was estimated to be around Rs. 79,400 crore.
  • In other words, the cumulative unutilized SHEC funds far exceeded the expenditure on both school and higher education in 2017-18.

What is the way forward?

  • Taxes in democratic societies indicate the presence of a collective socio-economic vision aimed at improving livelihoods.
  • Since a cess is introduced with a specific purpose, it is unjustified when the proceeds remain unutilized for so many years.
  • Moreover, the current context is that of self-imposed fiscal discipline and the consequent reduction of public expenditure.
  • So the opportunity cost of unutilized education cess proceeds is significantly high.
  • It is high time that the government immediately begins utilizing cess proceeds.
  • Importantly, it should also publish an annual account of the manner in which they have been utilized.

 

Source: The Hindu

Related News: Legality of GST Cess

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