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To get additional resources for the farm sector, the Budget has proposed Agriculture Infrastructure and Development Cess (AIDC) on over a dozen items, including gold-silver, alcoholic beverages and petrol-diesel. However, the consumer will not have to pay more for any of these items.
“There is an immediate need to improve agricultural infrastructure to produce more, while also conserving and processing agricultural output efficiently. This will ensure enhanced remuneration for our farmers. To earmark resources for this purpose, I propose an Agriculture Infrastructure and Development Cess (AIDC) on a small number of items,” Finance Minister Nirmala Sitharaman said, while assuring that application of cess will not result into price rise.
Accounting exercise
This is more of an accounting exercise. On 12 items, including gold-silver, apple, alcohol etc, there will be reduction in basic custom duties (BCD) and there will be proportionate imposition of cess. Similarly, for petrol and diesel, AIDC of ₹2.5 a litre and ₹4 a litre respectively will replace similar amount of Additional Excise Duty (AED) on these fuels. AED is basically known Road and Infrastructure Cess which is at present ₹18 a litre.
This means barring fuel, all other products will have substitution of central levy by cess while for fuel, part of a cess will be known as new cess.
What does it mean and why this accounting change? Cess is levied for specific purpose on all the taxpayers. The most important thing is that while in case of custom duty or central excise duty, the Centre is to share with States, but there is no such compulsion for cess and surcharge.
The principle of not sharing cess does not go well with States. In fact, in recent meeting with Finance Minister as part of pre-budget consultation, two at least two States — Tamil Nadu and Telangana — urged the merging of cess and surcharge with basic tax rates.
The share of cesses and surcharges in the revenue mix has been increasing, particularly after the recommendations of the 14th Finance Commission, which raised the States’ share in the divisible pool of taxes to 42 per cent from the earlier 32 per cent.
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