Central Cess Remains Cash Cow, A Case For The 16th Finance Commission

An earlier column here had dealt with the states’ discomfiture with the centre’s collection of cess since it is money not shared with them. The trend continues with this Budget.

The provisional estimates for 2024-25 peg cess collections at Rs 2,49,180 crore, up almost Rs 12,000 crore from the revised estimates of Rs 2,37,500 crore for 2023-24.

At almost Rs 2.5 lakh crore, this is not a small amount for the states to have no share in. The 16th Finance Commission needs to examine this and perhaps recommend that this amount too should form part of the divisible corpus.

The revised estimates for 2023-24 put collections from health and education cess, levied both on corporation tax and income tax, at Rs 78,000 crore. In 2024-25, the amount is estimated to grow to Rs 83,000 crore.

On the customs side, social welfare surcharge, health cess and agriculture infrastructure and development cess and cess from exports have, as per revised estimates for 2023-24, brought in Rs 43,400 crore. The budgeted amount for these cesses in 2024-25 is projected at Rs 44,280 crore.

Similarly, cess from crude oil, agriculture infrastructure and development cess, road and infrastructure cess contributed Rs 1,16,100 crore, as per revised estimates for 2023-24. The amount budgeted for 2024-25 from these cesses is Rs 5,800 crore more at Rs 1,21,900 crore.

Tax Revenues Raised And Not Realised

The other disturbing data of the Receipts Budget is the tax revenues raised but not realised at the end of reporting year 2022-2023.

The total of the amounts under dispute between corporation tax, income tax, central goods & services tax (CGST) customs, union excise and service tax is a mind-boggling Rs 12,21,976 crore. The amounts not under dispute, implying that all appeals are over and this is revenue due to the government, is Rs 9,08,430.67 crore.

There are cases above 10 years in this category where the total amount due is Rs 1,42,657 crore. A note beneath the table in Annex-5 states the “prominent reason for Tax Revenue raised but not realised in amount not under dispute category are no assets or inadequate assets for recovery, assessees not traceable etc.”

The grand total of the entire tax revenue raised but not realised is a mammoth Rs 21,30,407 crore. This is substantial potential revenue for a government, which needs every rupee for its development and welfare programmes.

It should not be forgotten that the Centre’s outstanding liabilities are estimated to be about 57 per cent of GDP. The interest payments would be around 40 per cent of revenue receipts. Every rupee is thus required.

It thus becomes necessary that dedicated teams be created to trace defaulters and realize the amounts. As regards the amounts under dispute and pending for periods above 10 years, a review of such cases needs to be done.

If the case does not merit pursuing, they should be withdrawn or dropped and where there is a problem as indicated in the note, then take steps to write-off the amounts.

The interim budget has proposed a withdrawal of all outstanding disputed direct tax demands of up to Rs 25,000. The cut-off date is 2009. The impact of this proposal on the arrears should be studied and the scheme extended to larger amounts not recoverable.

Outdated Scrips-Based Schemes

The Abstract of Receipts in the Receipts budget holds another detail. This is with regard to the customs revenue generated through debit in ledger due to scrip-based schemes. The amount is Rs 37,236 crore.

The point to be noted is that actual revenue is not received by the government in such cases; the revenue is “received” as debits of scrips.

As the Receipts Budget at page 5 explains about the entry at 5.01.01.02: “The duty credit schemes provide to an exporter, certain credit amount, which can be utilized for payment of basic custom duty. The duty credit is allowed inter-alia to reimburse taxes/duties/levies suffered on exported goods. The scrips are credited in an exporter's ledger account maintained at custom EDI.”

Many schemes that reward exporters are dangerously close to being non-compliant with WTO norms. Most of them have been phased out; the debits are of scrips issued for exports done in the past. The government would do well to focus only on schemes like Rebate on State and Central Taxes and Levies (RoSCTL) Scheme, Remission of Duties and Taxes on Exported Products (RoDTEP) or drawback of duties. These schemes only return to the exporters’ duties of taxes paid by them on various inputs which have gone into the manufacturer of goods that are being exported. They are not subsidies or rewards.

(The author is former chairman of the Central Board of Indirect Taxes. Views expressed are personal)