As most cesses applied on indirect taxes collapsed into GST, receipts shrank to Rs 71k cr in FY18.
The Centre seems intent on boosting its tax receipts through the cess route, as this allows it to appropriate the entire proceeds without having to share them with state governments (see chart).
An attempt to boost receipts from various cesses was apparent in FY17 itself, the year that immediately followed the implementation of the 14th Finance Commission’s award that raised the states’ share in the divisible pool of taxes by a solid and unprecedented 10 percentage points to 42%.
During FY17, the clean energy cess on coal was doubled to Rs 400 per tonne and, as a result, the Centre’s cess receipts rose 60% to over Rs 1 lakh crore from about Rs 63,000 crore in the previous year. Cess receipts were 6.7% of the Centre’s net tax revenue in FY16 and this jumped to 9.1% in FY17.
As most cesses that were applied on indirect taxes collapsed into GST which was rolled out in July 2017, the cess receipts shrank to Rs 71,000 crore in FY18 (5.6% of net tax revenue).
However, the Centre wasted no time and brought in a Rs 8 per litre road and infrastructure cess on the sale of petrol and high-speed diesel — which replaced the Rs 6 per litre additional excise duty on these fuels — and budgeted for hefty increase in its cess proceeds to Rs 1.78 lakh crore (12% of net tax revenue) in FY19. (The actual collection figure for the year is still not in the public domain).
The spike in cess revenue for the Centre is excluding the GST compensation cess. Though the proceeds from the GST compensation cess levied on various luxury and demerit goods would be first used for compensating tax revenue loss to states on account of GST implementation, the funds that remain unutilised in the fund would be shared equally between the Centre and state governments. Whatever may be the use of these funds and the outcomes thereof, the burden of all these cesses fall on the consumers.
“Increasing the cess share in the total tax revenue may have a negative impact on fiscal federalism by curbing fiscal space of the state governments,” Satadru Sikdar, research associate at National Institute of Public Finance and Policy (NIPFP), said in a recent paper.
The utilisaton of cesses has, however, not been optimal as was pointed out by a Comptroller and Auditor General (CAG) report for FY 17. It said secondary and higher education cess (SHEC) has been levied since FY07 and Rs 94,036 crore has been collected till FY17. “The Cess is being retained in the Consolidated Fund of India, contrary to procedure, though a fund (Madhyamik and Uchchtar Shiksha Kosh) for this purpose was created in August 2017, and has not been operationalised so far,” the CAG observed.