Concerns in Utilization of Cess

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