India, being a welfare state, is home to 1.2 billion population and in this context public welfare becomes an important part of governance. Government’s role in providing education, health, decent standard of living etc. cannot be overlooked.
Swachh Bharat Abhiyaan is one of such programmes of the Union Government covering 4041 statutory cities and towns, to clean the streets, roads and infrastructure of the country. This campaign aims to accomplish the vision of a 'Clean India' by 2 October 2019. The Mission envisages an investment of 62009 crore rupees.
Swachh Bharat Cess
For funding the mission, Government notified levy of Swachh Bharat Cess at the rate of 0.5% on all taxable services on 6 November 2015 to be effective from 15 November 2015.
It is a Cess which shall be levied and collected in accordance with the provisions of Chapter VI of the Finance Act, 2015. Effectively, the new rate of service tax plus Swachh Bharat cess would be 14.5%.
This cess would be levied, charged, collected and paid to government independent of service tax. This needs to be charged separately on the invoice, accounted for separately in the books of account and paid separately under separate accounting code which would be notified shortly. It is expected to yield 3800 crore rupees for the remaining part of the year 2015 and around 10000 crore rupees for the full financial year 2015-16.
What is a cess?
Cess refers to a tax earmarked for a particular purpose, such as education. As per the Supreme Court of India judgment given in 2011, it is in the nature of fee and not a tax. Legally Article 270 of the Constitution provides for its imposition.
Cess is levied for specific purposes under a law made by the Parliament. It is levied and collected by the Union Government and is not a part of the Consolidated Fund of India. Further proceeds from cess do not form a part of divisible pool of resources between centre and states.
Cesses have been levied on many commodities like salt, sugar, tea, coffee rubber etc for the development of the respective markets, industry and infrastructure. Their collections exceeded 1 trillion rupees in 2013-14, or 13.14% of gross tax revenue.
Arguments for Swachh Bharat Cess
Increased Incidences of Diseases: A country with the 120 crore people mostly facing dirty surroundings cause many diseases, like, malaria, dengue, diarrhoea, jaundice, cholera etc., with associated high public health expenditure. According to the Government of India estimates, expenditure on health adds up to 6700 crore rupees annually. Increased allocation for Swachh Bharat Abhiyan can prevent many of these diseases with consequential benefit to one and all.
Increased Fiscal Burden: Increased social sector expenditure and commitment of public welfare has led to increased fiscal burden on the Government. Therefore, revenue raised through cess becomes important when viewed in the light of public welfare.
Arguments against Swachh Bharat Cess
Counter to Spirit of Cooperative Federalism: Among the problems with the Swachh Bharat cess is that it runs counter to the spirit of cooperative federalism as revenue raised through a cess or surcharge is excluded from the pool that is split between Centre and states. Comptroller and Auditor General (CAG) has pointed out that there is inadequate transparency and incomplete reporting in government accounts of the manner in which the money is spent.
Lack of Clarity on Institutional Structure: As with all cesses, the revenue from the Swachh Bharat cess is earmarked for the government initiative to improve cleanliness. However, unlike say the road cess, there is a lack of clarity on the institutional structure under which these resources will be spent.
Steps towards GST regime without Benefit: The increase in service tax with the imposition of Swachh Bharat Cess effectively to 14.5 % is being seen by many as a step towards the GST regime where the percentage is likely to fall between 16 to 18%. It is like paying GST rates without GST benefits. Also the need for such a cess is being questioned when GST has been proposed to be implemented from 1 April 2016.
Cess correlation with Outcomes Questionable: Though collection through various cesses has increased from 7.53% in 2000-01 to 13.14% in 2013-14 but its correlation with the outcome of various programmes needs understanding. For example, The Education cess and Secondary & Higher education cess also was introduced with an aim of promoting better educational facilities in the country. But the situation we are witnessing, like dropout rates are 52% at primary and elementary level in 2014, points that outcomes have not concomitant with the intent.
The initiative is an initiative till the country’s population contributes to it voluntarily and selflessly but a compulsion or imposition turns even a great initiative into a useless project.
India has an annual budget intended to raise revenues for carrying out basic public welfare functions such as education, health and sanitation. If these have to be funded through additional cesses and surcharges that raises the question whether normal budgetary revenues are being diverted to vested interests – exemplifying maximum government, minimum governance.
We need to cease taxation by stealth. Instead the focus should be on improving tax administration and cutting down wasteful expenditure for efficient fiscal management.
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