The increasing tendency of the central government to levy all manner of cesses robs state governments of their legitimate share of the central kitty—converting the Rs 1.65 lakh crore of cesses to taxes in FY17 alone would raise transfers to states by around Rs 58,000 crore. That, though, is probably the least of the problem with these cesses that are growing at a very fast rate —cess collections in FY17 are double those in FY15 and, as a proportion of tax collections, have risen to 10.2% as compared with 6.7% in FY15. The fact, as a recent IndiaSpend analysis—based on a CAG report—brings out so well, is that over 40% of the cess collected in the last decade was not even used for what it was earmarked, though the advantage of cesses over taxes is supposed to be that the collections are ring-fenced and cannot be used for any other purpose.
According to the CAG report, of the Rs 7,538 crore collected under the guise of the Universal Service Obligation (USO) fund from telecom players, only Rs 2,087 crore was actually transferred to the fund—it is not clear where Rs 5,451 crore got spent. It gets worse when you keep in mind the fact that Rs 66,117 crore was collected between FY03 and FY15, but of this, Rs 39,134 crore was not even transferred to the fund. In the case of the R&D cess (enacted in 1986), around R900 crore was not released for the purpose it was meant for in FY15—between FY97 and FY15, overR5,200 crore collected was not disbursed. In the decade that the primary education cess has been in existence (FY05 to FY15), the CAG found a short transfer of Rs 13,298 crore of the R154,818 crore collected, though most of the money was transferred to the relevant departments in FY15. The same however cannot be said of the Rs 64,228 crore collected under the secondary and higher education cess in the decade ending FY15. There is also a Rs 693 crore shortfall in the transfer of funds collected under the clean energy cess in FY15 and Rs 6,257 crore between FY11 and FY15.
And though this CAG report does not deal with the Oil Industry Development Board cess, around Rs 8,000 crore is collected on this account every year—over Rs 1 lakh crore has been collected under this head since 1975 while under Rs 1,000 crore has been used for what it was earmarked, the development of the oil industry. Nor does the matter end here. As TV Mohandas Pai and Rajesh K Moorti have pointed out in this newspaper (goo.gl/XV5cg0), the overcharging of administrative expenses by the EPFO and the ESI—and this does not take into account their commissions being excessive—was probably around R10,000 crore in FY16; as a result, the ESI has reserves of around R45,000 crore and is now establishing medical colleges to spend its money. While it is to be hoped the present government will utilise the cesses better, it is important to take a hard look and see which can be scrapped (USO, oil cess) and which levies can be pared significantly (EPFO/ESI).