The Comptroller and Auditor General (CAG) has, yet again, rapped the Centre for not using the proceeds collected from “cess, levies and other charges” for the specific purposes for which they were introduced. This amounts to short-changing the taxpayer — who coughs up such levies on goods, services and income in the faith that the proceeds are used for health and education, road and infrastructure, clean energy or other public goods. States have represented to the 15th Finance Commission that their share in gross tax revenues has fallen on account of the rising component of cesses and surcharges (on which they have no rights, thanks to the 80th Amendment to the Constitution, pertaining to Article 270). A report by Vidhi Centre for Legal Policy, submitted to the 15th finance panel, points out that the share of cesses and surcharges (a ‘tax on tax’) in gross tax revenue (GTR) increased from 7 per cent and 2 per cent, respectively, in 2012-13 to 11.9 per cent and 6.4 per cent, respectively in 2018-19. In one year alone, from 2017-18 to 2018-19, the collection from cesses increased from ₹2.2 lakh crore (11.1 per cent of GTR) to ₹2.7 lakh crore, and surcharges from ₹99,049 crore (5 per cent of GTR) to ₹1.4 lakh crore.

It is surprising that while 17 cesses and other levies were subsumed into the GST, 35 levies, according to the CAG report, remain in force. The CAG report observes that for 2018-19, out of the ₹2.7 lakh crore received from such levies (of which ₹95,081 crore is from GST Compensation Cess), only ₹1.64 lakh crore had been transferred to specific reserves and funds, the rest remaining with the Consolidated Fund of India. The report observes that “not only was the revenue/ fiscal deficit 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 etc., had been utilised for the specific purposes intended by the Parliament.” In auditing the Centre’s accounts for 2013-14, the CAG made a similar observation — of the proceeds being used to finance the revenue deficits over the years (pointed out by the Vidhi report). However, with respect to the GST cess, the Centre has said that the balance not credited (over ₹47,000 crore) has been used to pay out compensation in the subsequent periods.

Cesses are meant for a specific purpose and period (five years in the case of GST cess), whereas they appear to be rolled over quite often, besides being allowed for use in “related purpose”. A cess on health and education, both State subjects, is difficult to justify. The Centre should improve efficiency in tax collection, widen the tax base and reduce reliance on such levies.