What has the Comptroller and Auditor General of India found in its audit of government accounts?
The story so far: The Comptroller and Auditor General (CAG) of India, in its latest audit report of government accounts, has observed that the Union government withheld in the Consolidated Fund of India (CFI) more than ₹1.1 lakh crore out of the almost ₹2.75 lakh crore collected through various cesses in 2018-19. The CAG found this objectionable since cess collections are supposed to be transferred to specified Reserve Funds that Parliament has approved for each of these levies. The nation’s highest auditor also found that over ₹1.24 lakh crore collected as Cess on Crude Oil over the last decade had not been transferred to the designated Reserve Fund — the Oil Industry Development Board — and had instead been retained in the Centre’s coffers. Similarly, the Goods and Services Tax (GST) Compensation Cess was also “short-credited” to the relevant 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 government is empowered to raise revenue through a gamut of levies, including taxes (both direct and indirect), surcharges, fees and cess. While direct taxes, including income tax, and indirect taxes such as GST are taxes where the revenue received can be spent by the government for any public purpose in any manner it deems appropriate for the nation’s good, a cess is a earmarked tax that is collected for a specific purpose and ought to be spent only for that. Every cess is collected after Parliament has authorised its creation through an enabling legislation that specifies the purpose for which the funds are being raised. Article 270 of the Constitution allows cess to be excluded from the purview of the divisible pool of taxes that the Union government must share with the States.Editorial | Cess pool: On CAG report of Centre’s accountsHow many cesses does government levy?A report titled Cesses and Surcharges: Concept, Practice and Reforms since 1944, prepared by the Vidhi Centre for Legal Policy in August 2018 and submitted to the Fifteenth Finance Commission listed 42 cesses that have been levied at various points in time since 1944. The very first cess was levied on matches, according to this study. Post Independence, the cess taxes were linked initially to the development of a particular industry, including a salt cess and a tea cess in 1953. Subsequently, the introduction of a cess was motivated by the aim of ensuring labour welfare. Some cesses that exemplified this thrust were the iron ore mines labour welfare cess in 1961, the limestone and dolomite mines labour welfare cess of 1972 and the cine workers welfare cess introduced in 1981. The introduction of the GST in 2017 led to most cesses being done away with and as of August 2018, there were only seven cesses that continued to be levied. These were 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 introduced a new cess — a Health Cess of 5% on imported medical devices — in the Finance Bill for 2020-2021.Also read | Temporary retention of GST cess pending reconciliation not diversion: Finance Ministry sourcesWhy is the issue in the news currently?The CAG’s finding that the Centre retained ₹47,272 crore of GST compensation cess in the Consolidated Fund instead of crediting it to the GST compensation fund in the very first two years of the implementation of the new indirect tax regime has raised several key questions. For one, most crucially, the express purpose of this particular cess is to help recompense States for the loss of revenue on account of their having joined the GST regime by voluntarily giving up almost all the power to levy local indirect taxes on goods and services. Also, as the Vidhi Centre for Legal Policy report observed, the share of revenue 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 does not need to be a part of the divisible pool of resources, this increasing share of cess in the Union government’s tax receipts has a direct impact on fiscal devolution.
