After promising to prune tax rates and simplify the country’s tax structure, the Centre seems to be moving in the opposite direction. In the 2015 budget, the finance minister, in order to facilitate “a movement towards a unified Goods and Services Tax”, subsumed the education cess into indirect tax rates, effectively hiking both excise duty and service tax rates. But having ‘simplified’ tax rates in this manner, what was the logic for slipping in an enabling provision to levy a new Swachh Bharat cess? Service tax assesses will be required to shell out an additional 0.5 per cent by way of cess from November 15. This has given rise to a host of complications. Direct taxes continue to be subject to education cess, while indirect taxes are not. Within indirect taxes, services will now be liable to the Swachh Bharat cess while manufactured products will not. But such complexities apart, the very use of ad hoc cesses to fund critical central initiatives is bad tax policy.
Cess is regarded as a lazy tax in public finance; it may be easy to collect, but it is regressive and imposes an additional burden on the poorest section of taxpayers. Public spending programmes such as sanitation for all, primary school education and basic road connectivity are important enough to be funded out of the main budgetary resources. This is why both the Direct Taxes Code of 2009 and the Economic Survey of 2014 have recommended that the Centre do away with ‘bad taxes’ such as cesses and surcharges. But this counsel has mostly been ignored. Budget documents reveal as many as six different cesses that are administered by the revenue department and twice that number being levied by other ministries. As cesses are levied on top of the battery of indirect and direct taxes, they feed directly into the costs of doing business in the country. Also cesses seldom function as they should — as temporary taxes clearly earmarked for a specific purpose. Once imposed they are revised, hiked and shifted around, but seldom discontinued. The road cess has been around since 1998-99 and the education cess has recently completed a decade. Sketchy disclosures on deployment of the funds also ensure that we have no idea of whether collected sums get utilised in full. Both the road and education cess have seen an exponential jump in collections and now bring in ₹23,000 and ₹28,000 crore a year respectively. But this has not been translated into matching outcomes either on education or road infrastructure.
The Swachh Bharat cess has been justified on the count that it is “not another tax, but a step towards involving each and every citizen in making a contribution to Swachh Bharat”. But a new tax is hardly the way to achieve this. What we really need is greater civic sense on the part of every citizen, backed by grassroots initiatives such as door-to-door garbage collection, segregation at source and greater priority to waste management systems in our cities, villages and towns.