The Comptroller and Auditor General of India (CAG) has recently reported to Parliament that during the FY 2018-19, only 60% of proceeds from cess and levies were transferred to the corresponding Reserve Fund. The remaining 40% was kept in the Consolidated Fund of India (CFI).
Details on Non-utilisation of Funds
The Centre gathered a massive Rs. 2.75 lakh crore from 35 cesses and levies in FY19. Despite this, a considerable chunk of Rs. 1.1 lakh crore was maintained in the CFI, and only Rs. 1.64 lakh crore was moved to the relative Reserve Funds. Moreover, Rs. 40,000 crore of GST Compensation Cess and Rs. 10,157 crore from the Road and Infrastructure Cess were not sent to related Reserve Funds or applied for their intended purposes. Similarly, Rs. 2,123 crore of Universal Service levy, Rs. 79 crore collected as National Mineral Trust levy, and Social Welfare Surcharge on Customs amounting to Rs. 8,871 crore weren’t transferred to the designated Reserve Funds.
Importance of Reserve Funds
Non-creation or non-operation of Reserve Funds makes it challenging to guarantee that cesses and levies are utilized for the specific aims set by Parliament. In addition, cess on crude oil worth Rs. 1,24,399 crore, collected between 2010-2020, wasn’t transferred to the Oil Industry Development Board (the designated Reserve Fund) and was kept in CFI.
Mechanism of Utilisation
According to standard operating procedures, any cess or levy collected must first be transferred to the designated Reserve Fund before being used for the purpose established by Parliament. These funds, collected through Central taxes along with cesses and levies, are consolidated in the CFI. This fund pools taxes and surcharges, from which 42% is given to states as devolution.
Understanding the Consolidated Fund of India
The Consolidated Fund of India, established under Article 266 (1) of the Constitution of India, comprises all revenues obtained by the Centre by way of taxes and all non-tax revenues. It also includes all loans raised by issuing public notifications, treasury bills, and borrowing from foreign governments and international institutions. The government incurs all expenditures from this fund, barring exceptional items met from the Contingency Fund or Public Account. The Parliament must authorize all withdrawals from the Fund, which is audited by the CAG who then reports the findings to the relevant legislatures.
Defining Cess and Surcharge
A cess is a form of tax levied in addition to the base tax liability of a taxpayer. This temporary tax is used only when there is a need for public welfare expenditure. Examples include the Swachh Bharat Cess, introduced in 2015, and Infrastructure Cess announced in 2016.
On the other hand, a surcharge is an extra fee, charge, or tax added to the cost of a good or service beyond the initially quoted price. It’s levied for additional services or to cover the cost of increased commodity pricing. Unlike a cess, a surcharge is added to an existing tax and is not included in the stated price of the product or service.