Balancing balance sheet: Cesses, surcharges help window-dress govt accounts

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September 28, 2020 8:30 AM

A few other instances that show the rampancy of the practice of short-transfer/mis-appropriation of cess funds.

PACL refund, apply, portal, last date, claim,The need for rectification arose as there were deficiencies and required more details to be furnished.

Special-purpose cesses and surcharges, which have proliferated in recent years, have sub-optimally, if not grossly inadequately, served the intended purposes, as the Centre has used a chunk of the proceeds to window-dress its balance sheet and also appropriated these for other uses, going by a series of Comptroller and Auditor General (CAG) reports over the last few years.

A hefty 10 percentage point increase in states’ share of divisible pool of taxes by the 14th Finance Commission (2015-2020) and loss of revenue buoyancy over the last couple of years have resulted in a cementing of the questionable practice that not only impinges on Parliamentary propriety, but also is legally suspect.

Worse, lack of adequate disclosure in the Budget or annual accounts of the Centre of the utilisation of cesses collected or the unspent balances thereof, help the government managers hide the actual levels of short-crediting/diversions. Of course, the Centre has this unwarranted luxury only with regard to cesses which it collects (imposts like district mineral funds are being collected by states), but there are indeed a lot of such levies, 35 at last count.

Parliament approve a cess on the condition it’s used only to meet the stated objectives like giving financial impetus to a particular sector/area of economy and for use of welfare of a defined section of population.

The Centre is supposed to be a mere custodian of the cess funds collected and kept in Public Account, and ensure that these monies are utilised for the stated purposes.

Note these: Not a single rupee of the Rs 1,24,399 crore collected from the cess on crude oil collected over the decade to FY19 has been transferred to the designated Oil Industry Development Board fund. The entire Rs 94,036 crore collected as secondary and high education cess between FY07 and FY18, was retained in the Consolidated Fund of India and presumably used for many purposes other than the specified (The Madhyamik and Uchchtar Shiksha Kosh created for parking this cess in August 2017 has not even been operationalised so far).

While the CAG, in a recent report, said short-crediting of proceeds of various cesses to the designated Funds were Rs 1.1 lakh crore in FY19, it appears that these Funds were deprived of a much higher amount, in aggregate, in FY20. A simple fact will bear testimony to this assumption: The Centre’s net tax receipts or NTR (post-devolution to states) at Rs 13.56 lakh crore were 67.5% of its gross tax revenue (GTR) in FY20; in FY19, the NTR was only 63.3% of GTR in FY19 and the ratio was at 64.8% in FY16. In other words, as the chart shows, the cess receipts as a share of GTR has risen.

Clearly, the cess receipts – which are not required to be shared with the states–are parked with the Consolidated Fund of India for periods longer than justifiable, leading to (deliberate) overstatement of revenue receipts and under-statement of the Centre’s fiscal deficit. And these proceeds indeed get used for purposes, other than they are meant for, depriving the intended beneficiaries of their dues.

Going by a statement tabled by the finance ministry in Parliament in December 2019 and CAG report for FY19, the short /non-transfer to designated cess funds from the CFI was to the tune of Rs 3.4 lakh crore between FY15 and FY19. The gap (between collections and transfers to the designated funds) was Rs 31,384 crore in FY15, Rs 62,664 crore in FY16, Rs 72,941 crore in FY17 and Rs 61,372 crore in FY18, as per the statement. It is not clear whether and how much of these short-transfers are being corrected over the years; most likely, the corrections don’t take place in most cases.

The defence of the finance ministry is that, “the amount of cess released to specific schemes through dedicated reserve fund depends on the absorptive capacity of the department to spend in a year.” However, this argument has been repeatedly rejected by the CAG and it termed such a practice contrary to Parliament’s mandate. “Not only was the revenue/ fiscal deficits understated due to the non-transfer of these amounts to Reserve Funds, failure of the ministry of finance to create/ operate essential Reserve Funds makes it difficult to ensure that the cesses had been utilised for the specific purposes intended by the Parliament,” the CAG wrote in the latest report.

In fact, the CAG, in its compliance audit of the Fiscal Responsibility and Budget Management Act, 2003 for FY17, had said: “There is no disclosure in the annual accounts or in the Budget documents with regard to the actual utilisation of cess collected for the intended purpose and unutilised balances”.

The Centre collected a whopping Rs 2,74,592 crore from 35 cesses/levies in FY19: GST compensation cess (Rs 95,028 crore or 35%), road and infrastructure cess (Rs 51,273 crore or 19%), additional excise duty in high speed diesel oil and motor spirit (Rs 59,580 crore or 22%, this must have surged in FY20 as the rates were hiked steeply), health and education cess (Rs 41,177 crore or 15%) were among the largest cesses levied in the year.

A few other instances that show the rampancy of the practice of short-transfer/mis-appropriation of cess funds. The CAG observed that the scheme for “social welfare surcharge” on the customs duty via which Rs 8,871 crore was collected in FY19 did not even envisage a dedicated fund. Similarly, Rs 10,157 crore of the road and infrastructure cess collected during FY19 was neither transferred to the reserve fund nor utilised for the purpose for which it was collected.

A sum of Rs 8,077 crore collected under R&D cess during FY97-FY19, but only Rs 779 crore (9.64%) was credited to Technology Development Board. Though the R&D cess was abolished effective April 2017, cess amounting to Rs 191 crore was irregularly collected during FY18. The short- transfer from clean energy cess, imposed since FY11, was Rs 44,505 crore till FY18. Similarly, the short transfer from road cess was Rs 72,726 crore between 2004-05, the year it was imposed and FY18.

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