During the course of his Budget Speech on 29th February, 2016 Finance Minister’s agenda revolved around transforming India which encompass nine pillars and inter alia, include agriculture and farmer welfare with focus on doubling farmers income in next five years. Not only this, the thrust of tax proposals has been on measures to boost grounds and additional resource mobilization for agriculture, rural economy and clean environment. The Government of the day believes that taxation is a major tool available to the Government for removing poverty and inequality from the society.
To a common man, tax, surcharge or cess does not make any difference as all these modes of extracting money from the citizens have been used since many years. However, one may understand that while taxes go to common pool in Consolidated Fund of India, surcharge and cesses are specific purpose or end use levies collected alongwith or otherwise on incomes, goods or services.
Courts have held that ‘cess’ and surcharge is nothing but a tax or an additional tax. Various courts have held this view. In case of surcharge, it has been held that surcharge in the context of taxation means an additional imposition which results in enhancement of the tax and the nature of the additional imposition is the same as the tax on which it is imposed as surcharge.
The Government resorts to these levies as unlike tax which is to be shared between union and states, cesses are not part of divisible pool and are not shared with states-indeed a clearer move to fund projects dear to centre.
Though there is no major change in basic tax rates in direct and indirect taxes, the Budget 2016-17 talks of following three cesses-
(renamed from clean energy cess)
However, to reduce multiplicity of taxes, associated cascading and to reduce cost of collection, the Budget seeks to abolish or scrap 13 cesses levied by various ministries wherein revenue collection is less than Rs. 50 crore in a year. By saying so, Government concedes that cesses add to multiplicity of taxes and to cascading effect. It appears that the new cesses have the sole objective of revenue collection and it remains a mystery as to whether these cesses are spent for the desired objectives.
Clean Energy Cess
Budget proposes to rename the ‘clean energy cess’ levied on coal, lignite and peat as ‘clean environment cess’ and also simultaneously increase its rate from Rs. 200 per metric tonne to Rs. 400 per metric tonne.
|Clean Energy Cess|
|On||Coal / Lignite / Peat etc|
|@||Rs. 400 per metric tonne|
|Budget Target||Rs. 26148 crore|
|Cenvat Credit||Not allowed|
|To be paid in||Cash|
|Authority||Clause 232 of Finance Bill, 2016;|
The rate of cess has been doubled w.e.f. 01.03.2016 as under –
|Items||Existing rate||Proposed rate|
|On coal / Lignite / Peat||Rs. 200 pmt||Rs. 400 pmt|
In view of the concern over pollution and traffic situation in Indian cities, it is proposed to levy a cess called infrastructure cess of 1 percent on small petrol, LPG, CNG laws, 2.5 percent on diesel cars of specified capacity and 4 percent on other higher engine capacity vehicles and SUVs.
|W.e.f.||1st March, 2016|
|Authority||Clause 159 ; Chapter VII of 2016 of Finance Bill, 2016|
|Rate of cess||1 to 4 percent|
|Cenvat Credit||Not allowed|
|To be paid in||Cash|
|Budget Target||Rs. 3000 crore|
|Notification||Notification No. 1/2016-IC dated 01.03.2016|
Infrastructure cess has been levied on motor vehicles of heading 8703 of Central Excise Tariff Act as under –
a) Petrol/LPG/CNG driven motor vehicles of length not exceeding 4m and engine capacity not exceeding 1200cc;
b) Diesel driven motor vehicles of length not exceeding 4m and engine capacity not exceeding 1500cc;
c) Other higher engine capacity and SUVs and bigger sedans.
Three wheeled vehicles, electrically operated vehicles, hybrid vehicles, hydrogen vehicles based on fuel cell technology, motor vehicles which after clearance have been registered for use solely as taxi, cars for physically handicapped persons and Motor vehicles cleared as ambulances or registered for use solely as ambulance will be exempt from this Cess. No credit of this cess will be allowed and credit of no other duty can be allowed to pay this Cess.
Infrastructure cess shall be collected for the purpose of Union as an excise duty for the purpose of financing infrastructure projects. This cess shall be in addition to any other duties of excise chargeable on such goods under Central Excise or any other law and the applicable provisions relating to Central Excise and rules made shall apply to infrastructure cess. The proceeds of infrastructure cess shall be meant for Union and shall not be distributed among states.
Krishi Kalyan Cess (KKC)
The Budget proposes to impose a Cess, called the Krishi Kalyan Cess, @ 0.5% on all or any taxable services, proceeds of which would be exclusively used for financing initiatives relating to improvement of agriculture and welfare of farmers. The Cess will come into force with effect from 1st June, 2016. Input Tax credit of this cess will be available for payment of this cess.
The proceeds of the cess will go to consolidated Fund of India and shall be appropriated by the Parliament of India. All provisions of Service Tax shall apply to KCC.
|Krishi Kalyan Cess|
|On||All taxable services|
|Authority||Clause 158; Chapter VI of Finance Bill, 2016|
|@||0.50 percent of value of services|
|For||Improvement of agriculture and welfare of farmers|
|Budget Target||Rs. 5000 crore|
KKC shall be levied as Service Tax on all or any taxable services at the rate of 0.5 percent on the value of taxable services. KKC has been levied for the purpose of financing and promoting initiatives to improve agriculture or for any other purpose relating to it. KKC shall be in addition to any cess or Service Tax leviable on such taxable services under Chapter V of Finance Act, 1994. The proceeds of KKC shall be credited to the Consolidated Fund of India and subject to appropriation by Parliament by law. Central Government can utilize the KKC money for specified purposes. KKC shall be subject to provisions and rules as applicable to Service Tax under Finance Act, 1994.
Thus so far has Service Tax is concerned, effective tax cost shall be 15 percent of value of services w.e.f. 01.06.2016, i.e. 14% Service Tax, 0.50% Swacch Bharat Cess and 0.5 percent of Krishi Kalyan Cess. Of this, 14.5% shall be cenvatable but 0.50% of SBC not.
Since KKC is leviable on all or any taxable services (there may be exemptions to be announced later), it will have an adverse effect on make in India programme and starts ups, besides adding to inflation. It also goes against the philosophy of having an environment of ease of doing business in India.
The levy of cesses is unfair to both, states as well as tax payers but this practice is, of late, rampant and increasingly used to collect funds whose end use is also not transparent. These sectors for which cess is collected also suffer neglect in the main Budget allocation. Since these are not shared with the states, the states are at the mercy of Union for funds in relation to these sectors leading to imbalance in sectoral growth and social sectors.
It can only be hope that under the GST regime, there will be a ‘full stop’ to cesses and surcharges, at least in Indirect Taxes.