The share of surcharge, which was stable at 2.4-2.8 per cent of tax for five years through fiscal years 2013-2018, grew to 6.3% of tax in the last financial year 2018-19.
The share of surcharge — essentially a tax on tax — in the government’s entire tax kitty has more than doubled in the last financial year. Similarly, the share of the surcharge and cess — yet another tax on tax — put together has also spiked in the overall tax revenue. The share of surcharge, which was stable at 2.4-2.8 per cent of tax for five years through fiscal years 2013-2018, grew to 6.3% of tax in the last financial year 2018-19, RBI data showed. Not only this, it is expected to rise further to 6.7% of tax in the current fiscal year 2019-20, per the Budget estimate.
The jump in the share of surcharge has also pulled the overall share of cess+surcharge in the government’s tax revenue from 10.6% in FY 2017-18 to 14.5% in the last year 2018-19. Cess and surcharge put together will form 15% of the government’s gross tax collections this year, according to the official data.
This shows that surcharge and cess are gradually becoming the government’s favourite channels of revenue generation. Given the need to boost infrastructure and other investments, the RBI expects mobilisation of higher resources can take place by the collection of cesses and surcharges, which are not part of the divisible pool of shared taxes.
The RBI expects that the enhanced surcharge on individuals, having taxable income from Rs 2 crore to Rs 5 crore and Rs 5 crore and above, to increase the effective tax rates for these two categories by around 3 per cent and 7 per cent, respectively. However, the enhanced surcharge levied on long and short term capital gains arising from the transfer of equity shares in the Budget 2019-20, has been rolled back.
While the surcharge is not earmarked, the cess is aimed towards a specific scheme. For instance, when the “Swachh Bharat Abhiyan” was launched, the government also introduced “Swachh Bharat Cess” simultaneously. Meanwhile, the government has also removed many cesses, which were not profitable or those which have already collected enough funds for the specific scheme. The central government is not obligated to share the amount generated from surcharge or cess with the state governments.