Budget 2016: Petroleum products and crude oil add biggest chunk to cess pool

NEW DELHI: The imposition of Krishi Kalyan cess, expected to yield Rs 5,000 crore to the government next year, as well as the infrastructure cess on cars that is estimated to yield Rs 3,000 crore, adds to a growing trend of the Centre raising a substantial chunk of its tax revenues from cesses and surcharges. In 2016-17, such levies are estimated to add up to over Rs 1.9 lakh crore.

Apart from being an additional burden on taxpayers, cesses skew the actual share of central taxes that states get. Cesses do not form part of the divisible pool which the Centre has to share with the states. Thus, an increasing share of cesses in central tax revenues means states get effectively shortchanged on their share.

Cesses and surcharges added up to an estimated Rs 1.9 lakh crore in 2016-17: that's about 12% of the total money collected from all central taxes and nearly onefifth of the Centre's own share in these taxes. Just two years back, in 2014-15, cesses and surcharges accounted for just over 8% of total central taxes and a little more than 11% of the Centre's share.

The fourteenth finance commission had last year recommended a 10 percentage point increase in the states' share in central taxes while also suggesting that several central schemes be shifted to them to fund. Increasing cesses, it could be argued, negates this higher share for the states.



The single biggest chunk of cesses is on petroleum products and crude oil. These alone account for over Rs 88,000 crore in the Budget for 2016-17, more than twice the amount they fetched the government in 2014-15. That this has happened despite the slump in oil prices is because the road cess (technically designated as additional duty on customs and excise on petrol and diesel) has been hiked as the price has fallen.



The next biggest chunk comes from education cesses which are estimated to yield over Rs 30,000 crore in 2016-17. This is lower than the nearly Rs 36,000 crore mop-up from these cesses in 2014-15, but that's because last year's Budget subsumed education cesses on service tax into the main tax itself.

Other cesses, including the new ones, are budgeted to yield close to Rs 47,500 crore in the coming year, a nearly six-fold jump from the 2014-15 level of Rs 8,400-odd crore. All told, cesses add up to over Rs 1.66 lakh crore in the 2016-17 Budget estimates. The largest chunk of this is the Swachh Bharat cess, estimated to mop up Rs 10,000 crore. Various surcharges, including the one on income tax for those earning more than Rs 1 crore per year, add up to another nearly Rs 28,000 crore in the Budget estimates.

Again, the surcharge on petroleum products in excise duties is the bulk of this component, accounting for Rs 19,000 crore in the budget estimates for 2016-17.

Times View

This newspaper has repeatedly argued that cesses and surcharges should be avoided except in extraordinary situations. If the government imposes cesses to fund things like roads, education, infrastructure or cleaning up the environment, what are our normal taxes for? These are routine functions of the state which should be funded from normal taxes. Given the fact that cesses are not shareable with the states, an increasing use of cesses by the Centre also means that the states are short-changed. In a federal set up that too is not a desirable state of affairs. Central governments must shun the temptation to impose cesses at the drop of a hat and focus instead on efficient utilization of normal tax collections.