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The Hindu Explains | Where are the funds collected through cess parked?

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What has the Comptroller and Auditor General of India present in its audit of presidency accounts?

The story to this point: The Comptroller and Auditor General (CAG) of India, in its newest audit report of presidency accounts, has noticed that the Union authorities withheld in the Consolidated Fund of India (CFI) greater than ₹1.1 lakh crore out of the virtually ₹2.75 lakh crore collected through numerous cesses in 2018-19. The CAG discovered this objectionable since cess collections are presupposed to be transferred to specified Reserve Funds that Parliament has permitted for every of those levies. The nation’s highest auditor additionally discovered that over ₹1.24 lakh crore collected as Cess on Crude Oil over the final decade had not been transferred to the designated Reserve Fund — the Oil Industry Development Board — and had as a substitute been retained in the Centre’s coffers. Similarly, the Goods and Services Tax (GST) Compensation Cess was additionally “short-credited” to the related reserve fund to the extent of ₹47,272 crore in two years (₹40,806 crore in 2018-19 and ₹6,466 crore in 2017-18).

What is a cess?

The Union authorities is empowered to boost income through a gamut of levies, together with taxes (each direct and oblique), surcharges, charges and cess. While direct taxes, together with earnings tax, and oblique taxes reminiscent of GST are taxes the place the income acquired may be spent by the authorities for any public objective in any method it deems applicable for the nation’s good, a cess is a earmarked tax that’s collected for a particular objective and must be spent just for that. Every cess is collected after Parliament has authorised its creation through an enabling laws that specifies the objective for which the funds are being raised. Article 270 of the Constitution permits cess to be excluded from the purview of the divisible pool of taxes that the Union authorities should share with the States.

Editorial | Cess pool: On CAG report of Centre’s accounts

How many cesses does authorities levy?

A report titled Cesses and Surcharges: Concept, Practice and Reforms since 1944, ready by the Vidhi Centre for Legal Policy in August 2018 and submitted to the Fifteenth Finance Commission listed 42 cesses which were levied at numerous time limits since 1944. The very first cess was levied on matches, in response to this research. Post Independence, the cess taxes had been linked initially to the growth of a specific business, together with a salt cess and a tea cess in 1953. Subsequently, the introduction of a cess was motivated by the goal of guaranteeing labour welfare. Some cesses that exemplified this thrust had been the iron ore mines labour welfare cess in 1961, the limestone and dolomite mines labour welfare cess of 1972 and the cine staff welfare cess launched in 1981. The introduction of the GST in 2017 led to most cesses being carried out away with and as of August 2018, there have been solely seven cesses that continued to be levied. These had been Cess on Exports, Cess on Crude Oil, Health and Education Cess, Road and Infrastructure Cess, Building and Other Construction Workers Welfare Cess, National Calamity Contingent Duty on Tobacco and Tobacco Products and the GST Compensation Cess. And in February, Finance Minister Nirmala Sitharaman launched a brand new cess — a Health Cess of 5% on imported medical gadgets — in the Finance Bill for 2020-2021.

 

Why is the challenge in the information at the moment?

The CAG’s discovering that the Centre retained ₹47,272 crore of GST compensation cess in the Consolidated Fund as a substitute of crediting it to the GST compensation fund in the very first two years of the implementation of the new oblique tax regime has raised a number of key questions. For one, most crucially, the specific objective of this specific cess is to assist recompense States for the lack of income on account of their having joined the GST regime by voluntarily giving up virtually all the energy to levy native oblique taxes on items and companies. Also, as the Vidhi Centre for Legal Policy report noticed, the share of income to the Centre’s annual tax kitty from cess had risen to 11.88% of the estimated gross tax receipts in 2018-19, from 6.88% in 2012-13. Given that cess doesn’t have to be part of the divisible pool of assets, this growing share of cess in the Union authorities’s tax receipts has a direct impression on fiscal devolution.



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