The tax department, it is often said, has what it takes to take what you have. This motto, once suggested for the US Internal Revenue Service, could well be used for governments. Taxation has probably generated more dark humour than any branch of finance, and the reasons seasonally dawn on taxpayers. The cynicism was best encapsulated by Ronald Reagan, who said, “The taxpayer is someone who works for the government but doesn’t have to take a civil examination.”
This week, the wise men on the Goods and Services Tax Council met at its 30th meeting. The buzz was about rate cutting and inclusion of petroleum products under GST. The wise men discussed a new ‘cess’ — the National Disaster Relief Cess. On Friday, the GST Council set up a seven-member committee led by Sushil Modi, deputy chief minister of Bihar, to examine the “modalities for revenue mobilization”.
Social media, which is a fertile ground for dark humour, buzzed about news of one more cess. On Saturday, Twitter was asked, ‘How about a cess for man-made disasters — for perpetual potholes, power sector losses and outages, for water woes, for loss-making PSUs, for IL&FS…’ Twitter universe suggestions included Air India Cess, LIC Cess, NPA cess, manual drainage cleaners’ cess and a Lower Parel Traffic cess. An angry Keralite suggested that the cess be called refuse donation to tax cess and one smart-alecky suggestion was for “success”!
The question is not about the merits of providing much-needed relief to people hit by natural calamities. For the record, a National Calamity Contingency Duty on tobacco and crude oil has been in existence for over 15 years, and only in July 2017 was this levy subsumed in the GST. The question is how many different ways can a good or service be taxed, and indeed, where does the pyramiding of taxes stop or will it stop at all!
There is a pantheon of cess and surcharges imposed on taxpayers. Consider the list and these are just those levied by the Central government. There is the education cess on corporation tax and on income tax — total collection for this year is estimated to be `49,461 crore. Add the surcharge on corporation and income tax to collect an estimated `100,605 crore. Oh yes, as a mark of optimism, there is also a surcharge on exports. Secondary Education Cess and a surcharge adding up to 3 per cent have been merged and called Social Welfare Surcharge at 10 per cent of aggregate duties.
This week, prices for petrol crossed the `90 per litre milestone in Maharashtra. And that is not a surprise. The cess on crude oil, estimated at `14,850 crore, will be higher thanks to the rise in crude prices from the budgeted $65 per barrel to $80 per barrel. Add the duty on motor spirit and high speed diesel oil aka Road Infrastructure Cess estimated at `113,000 crore.
The Swachh Bharat Cess, the Krishi Kalyan Cess, the Bidi Cess, Sugar Cess, Automobile Cess, and Clean Energy Cess as also surcharge on Pan Masala have been subsumed into the GST. One would think that the merging of the cess list into GST would provide the required ballast. Not so, it would seem. States bulldozed the Centre into agreeing on higher and multiple rates under the regime and also ensured that whatever losses they incur will be reimbursed from revenue collected by the Central government. The reimbursement by the Centre to the states has a name. It is called GST Compensation Cess—estimated collection for the year is `90,000 crore.
The total cess and surcharge collected under the various heads in 2018-19 would be over `3 lakh crore. Mind you, neither cess nor surcharge is shared with states. Indeed, the RBI’s 2017-18 report on state finances reveals that revenue collected as cess and surcharge by the Centre has “gone up from 9.3 per cent of gross tax revenues in 2014-15 to around 14.2 per cent in 2018-19 (BE). Accordingly, states’ share in Centre’s gross tax revenue (including cess/surcharges) fell to 34.6 per cent in 2017-18 (RE) from 35.4 per cent in 2016-17.”
Ironically, the bulk of the cess is raised under heads which are theoretically state subjects — just education cess levied on income tax and corporation tax has doubled from `25,353 crore in 2016-17 to nearly `50,000 crore in 2018-19. The expenditure of the Centre and states on education has shot up in ten years from `67,000 crore to over `4 lakh crore. The grief is less about the tax imposed or revenue collected and more about the poor state of education — the many studies, like that of Pratham and the pull-out from PISA are delta points. The story is not very different when it comes to health care or urbanisation.
Gross tax revenues of the Centre have shot up from `6.24 lakh crore to `22.71 lakh crore, and those of states from `5 lakh crore to over `20 lakh crore between 2009-10 and 2018-19. Higher collections lead to higher outlays and theoretically better outcomes. The lament of the taxpayer is about rising populism and about the profligacy of government. The promise of rationalization and lower taxes arrives at every general election and hibernates for the next five years — public sector banks and enterprises continue to bleed, power theft costs continue to rise, monetization of idle land is still an idea and the 2015 report on Expenditure Management by the Bimal Jalan Committee is perhaps in orbit.
Cess and excess are a heady cocktail to prop up the profligate state.At the height of the fight for American Independence, James Otis said, “Taxation without representation is tyranny.” Well, centuries later, taxpayers can reveal that taxation with representation is no paradise email@example.com