Context: Recently, the Comptroller and Auditor General of India (CAG) told Parliament that the Centre has only transferred 60% of the proceeds from cess/levies in Fiscal Year 2018-19 to the relevant Reserve Funds and retained the balance in the Consolidated Fund of India (CFI).

• The Centre had collected Rs. 2.75 lakh crore from 35 cesses/levies in FY19. However, it has only transferred Rs. 1.64 lakh crore and retained Rs. 1.1 lakh crore in the CFI.

Do you know?

• Cesses and levies collected are required to be first transferred to designated Reserve Funds and utilised for the specific purposes intended by Parliament.
• Funds collected through Central taxes along with cesses and other levies go to the CFI.
• Taxes and surcharges in CFI are parked in a divisible pool and 42% of the total is given to States as devolution.

Additional Information

Consolidated Fund of India

• It was constituted under Article 266 (1) of the Constitution of India.

Composition

• All revenues received by the Centre by way of taxes (Income Tax, Central Excise, Customs and other receipts) and all non-tax revenues.
• All loans raised by the Centre by issue of Public notifications, treasury bills (internal debt) and from foreign governments and international institutions (external debt).
• All government expenditures are incurred from this fund except exceptional items which are met from the Contingency Fund or the Public Account.
• No amount can be withdrawn from the Fund without authorization from the Parliament.
• The CAG audits the fund and reports to the relevant legislatures on the management.

Concept of Cess

• It is a form of tax levied over and above the base tax liability of a taxpayer.
• It is resorted to only when there is a need to meet the particular expenditure for public welfare.
• It is not a permanent source of revenue for the government, and it is discontinued when the purpose of levying it is fulfilled.
• It can be levied on both indirect and direct taxes.

Types of cess in India

• Education Cess: Education cess was introduced to finance and provide standard quality education to poor people.
• Health and education cess: Proposed in Budget 2018 by Finance Minister Arun Jaitley to meet the education and health needs of rural and rural and Below Poverty Line (BPL) families.
• Swachh Bharat Cess: Introduced in 2015, a 0.5% Swachh Bharat cess was imposed to fund national campaign for clearing the roads, streets and the infrastructure of India.
• Krishi Kalyan Cess: This cess was aimed at developing the agricultural economy, and was collected at the rate of 0.5%.
• Infrastructure Cess: Announced in Union Budget 2016, this cess was charged on the production of vehicles.

Key Features

• 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 UTs according to the guidelines by the Finance Commission. But the cess proceeds need not be shared with them.
• The government has to create a dedicated fund in order to utilize the cess proceeds lying in CFI.

What is the difference between tax and cess? What is cess tax?

• Cess is different from taxes such as income tax, GST, and excise duty etc as it is charged over and above the existing taxes.
• While all taxes go to the Consolidated Fund of India (CFI), cess may initially go to the CFI but has to be used for the purpose for which it was collected. If the cess collected in a particular year goes unspent, it cannot be allocated for other purposes. The amount gets carried over to the next year.
• Another major difference between central taxes and cess is that the proceeds of a cess may or may not be shared with the state governments, while that of taxes have to be shared.
• The procedure for introducing cess is comparatively simpler than getting the provisions done for introducing taxes, which usually means a change in the law.
• Cess is also easier to modify and abolish.

Surcharge

• It is an extra fee, charge, or tax that is added on to the cost of a good or service, beyond the initially quoted price.
• It is added to an existing tax and is not included in the stated price of the good or service.
• It is levied for extra services or to defray the cost of increased commodity pricing.