What our government - or Budget 2017 - won't reveal about all the cess you pay

Don't go overboard with your expectations on both the Income Tax relaxations and the Goods and Services Tax (GST). With merely 2.8 crore income tax payers in the country, any relief in personal income tax will neither drive consumption on a huge scale nor beat demonetisation blues.

Indirect taxation or tax on consumption is the real tax that applies to everyone, and, surprisingly, this is where successive governments have been less than transparent to the extent of being unfair.

Taxation through cess is always abhorred for its opacity. However, Indian finance ministers are simply obsessed with levying cess of various kinds.

Modi government's passion for cess has been manifest in the last three budgets with the imposition of three new cesses. The Krishi Kalyan cess and Swachh Bharat cess were levied on service tax, while 2.5 percent to 4 percent cess was imposed on infrastructure and cars.

However, over the last two years, the government never explained where the proceeds of cess on cleanliness and agriculture were going.

During the last month, when the people were standing in queues before banks and Parliament lay disrupted, a report of the Comptroller and Accountant General (CAG) went largely unreported.

This is the first-ever comprehensive report on cess-raj in recent years that tells how intricate the cobweb of cess has become amid the clamour of tax reforms.

While the extent of opaque cess is widening, the government is being increasingly discreet about where the proceeds from such cess go.As we approach another budget which may slap yet another cess on us, let’s have a look at the cess-raj in India:

Tax on mobile

Many citizens do not know that mobile operators pay a tax on their revenue to take phones and the internet to villages. This is called Universal Access Levy. This tax is imposed on our telephone bill. For its utilisation, a Universal Obligation Fund has been established.

According to the CAG, Rs 66,117 crore was raised from this levy between 2002-03 and 2015-16, out of which only Rs 39,133 was given to the fund.

Can the government explain why the levy is still being charged if mobile telephony has already reached the villages?

Also, if this money is already with the government, why can’t it be used to upgrade the mobile network and check call drop?

Tax on education

In 2006-07, a special one percent cess was levied on Income Tax to modernise secondary and higher education.

By 2015-16, Rs 64,228 crore was raised from the cess. According to the CAG, neither did the government establish a fund for its use nor allocate the money for schemes related to higher education.

If there are sufficient funds for education, what is the point of putting additional burden on the taxpayer? Why is the country not accounting for the cess?

Clean energy tax

In 2010-11, a Clean Energy Fund was established to promote technologies for clean and smoke-free electricity generation. A cess is imposed on domestic and imported coal to finance the fund, thus making electricity costlier for consumers.

The government collected Rs 15,174 crore from this cess between 2010 and 2015 of which the Clean Energy Fund received only Rs 8,916 crore. In Budget 2016, the government renamed it as Clean Environment Fund and also doubled the rate of clean energy cess.

Tax on research

The CAG report exposes another cess. Not many know that the government imposes heavy cess (on import duty) on the import of technologies.

The Research and Development cess has been operational since 1986 under which 5 percent tax is levied on technology imports to fund indigenous tech research and innovation. The Technology Development Board is designated to receive this money.

From 1996-97 to 2014-15, Rs 5,783 crore was collected from this cess. But the board’s fund received a paltry Rs 549 crore.

Cess is not a tax per se. This can well be called an obscure layer of indirect tax. It is imposed for one stated purpose, but utilised for another. As the cess collection goes beyond the shared tax pool of the Centre and the states, the latter has all the reason to complain.

The Centre’s total cess collection had grown 55 percent in 2015-16. Last year, it collected revenue to the tune of Rs 1.06 lakh crore in which the states had no share.

Notably, the recent discussion between Centre and state governments on GST derailed right after finance minister Arun Jaitley proposed levying a cess over and above the GST.

The very fascination with cess appears to stay even after seeking to bring in the GST, meant to subsume all other taxes, cesses and levies.

Brace up to welcome another cess in the coming Budget and a few from state governments as the Centre’s cess-sadism, in all likelihood, would spill over to states.