The National Democratic Alliance government has just introduced a cess of > 0.5 per cent on all taxable services for the Swachh Bharat campaign . In February 2016, it will introduce a 2 per cent cess on airfares for all domestic flyers except those flying to remote locations, and international travellers. This cess is meant to fund losses that airlines may incur in connecting to hinterland locations. The Central government loves cesses, partly because it doesn’t have to share the proceeds with State governments. It has been levying them for several important causes including primary education, secondary education, road development, the welfare of construction workers and beedi workers, clean energy, research and development and universalisation of telecom coverage, among several others. But good intentions often pave the road to hell, as is evident from the fact that over Rs.1.4 lakh crore of cess proceeds lie unutilised and inadequately accounted for in the government’s books. Take, for example, the case of the Secondary and Higher Education Cess paid by all income tax payers that has yielded over Rs.64,000 crore between 2006 and 2015. Not a rupee of that has been spent, while hundreds of students now fork out more for higher education since the government has discontinued the non-National Eligibility Test fellowship. That the government has failed to even set up a fund to pool the proceeds shows the lack of planning that precludes and follows the levy of a cess. So is the case with the proposed airfare cess. The government is yet to identify routes that the cess would subsidise, or spruce up the many defunct civil airports.
The point of a cess is that the money it generates can only be used for the designated purpose so it can be an effective policy tool in theory. But if the money isn’t spent for the designated purpose, as the audit report of the Comptroller and Auditor General of India tabled in Parliament has shown, it just stagnates and distorts the economy further: the additional tax brings down real incomes without any accompanying gain in socio-economic indicators as targeted. Then there is the question of whether a given cess is needed at all. Most reasons cited for levying a cess, such as purposes of education, are important enough for direct budgetary allocations — as happens in the developed world. So the government can simply raise the tax rate rather than impose multiple cess levies. But with the Fourteenth Finance Commission increasing States’ share of the common pool of resources, cesses are tempting for the Centre to shore up its own finances. If it wants to keep complicating the taxation system for good intentions, the government should start disclosing a deployment plan to achieve the intended outcomes from cess collections before imposing the next such levy on citizens.
