Contribution of cesses to central govt's tax kitty doubles to over 18%

States have been concerned about increasing cases of Centre imposing cesses for garnering additional revenue

The share of proceeds collected through various types of cess in the net revenue receipts of the central government has increased from 7.3 per cent in FY14 to 18.2 per cent in FY21.

The details of cess collected by the government were shared by the Finance Ministry in response to a question raised in the ongoing winter session of Parliament.

The data shows that in FY14, an amount of Rs 73,880 crore was collected as cess, constituting 7.3 per cent of the total revenue receipts of Rs 10.14 trillion the same year. In FY21, the cess collected rose to Rs 2,96,884 crore (excluding Goods and Services Tax compensation cess) or 18.2 per cent of that year's total revenue receipts, amounting to Rs 16.33 trillion.

For individual taxpayers, cesses are like additional regular taxes as the levies add to their overall burden of tax outgo. However, while cesses are added to the Centre’s tax kitty, the states do not receive any share.  

After GST implementation, states began depending heavily on central tax devolution as a source of finance for carrying out their financial responsibilities. States have been raising concerns about increasing instances of the Centre imposing cesses for garnering additional revenue. They also flagged the issue at the pre-budget meeting with finance Minister Nirmala Sitharaman last month. At that meeting, states urged the central government to merge the cesses into the basic rates of tax so that the states receive their due share during devolution of taxes.

N R Bhanumurthy, vice-chancellor, Dr BR Ambedkar School of Economics University, Bengaluru, said there is a need to bring cesses and surcharges into the divisible pool and should be distributed among the states like regular taxes. “By this inclusion, states will get a bigger share of devolution from the centre's net proceeds to meet their expenditure commitments,” he said.

The 14th Finance Commission had also recommended that a constitutional amendment be brought to put the revenues collected from cesses under the divisible pool.

The Centre at present collects cess under the heads such as health and education cess, additional excise duties on petrol, additional excise duties on high-speed diesel, road and infrastructure cess, National Calamity Contingent Duty, cess on crude oil, cess on exports, Agriculture Infrastructure and Development Cess and GST compensation cess.